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Common Stock Price Effects of Security Issues Conditioned by Current Earnings and Dividend Announcements

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  • Manuel, Timothy A
  • Brooks, LeRoy D
  • Schadler, Frederick P

Abstract

The valuation effect of debt and equity issue announcements on stock price varies predictably with the timing of earnings and dividend reports. Issue announcements closely preceding current cash flow signals have more negative valuation effects. Straight debt announcements also have a significantly negative effect on stock price when the offer announcement closely precedes earnings and dividend releases. The evidence is consistent with a separating equilibrium where better performing firms signal superior value by announcing equity offers shortly after dividend announcements. Poorer performers appear to time equity offers just before dividend signals, which in turn are more likely to be negative. Copyright 1993 by University of Chicago Press.

Suggested Citation

  • Manuel, Timothy A & Brooks, LeRoy D & Schadler, Frederick P, 1993. "Common Stock Price Effects of Security Issues Conditioned by Current Earnings and Dividend Announcements," The Journal of Business, University of Chicago Press, vol. 66(4), pages 571-593, October.
    • Handle: RePEc:ucp:jnlbus:v:66:y:1993:i:4:p:571-93
    DOI: 10.1086/296618
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    Cited by:

    1. Brucato, Peter Jr. & Smith, David M., 1997. "An analysis of the role of firm reputation in the market's reaction to corporate dividends," The Quarterly Review of Economics and Finance, Elsevier, vol. 37(3), pages 647-665.
    2. Augusto Castillo, 2004. "The announcement effect of bond and equity issues: evidence from Chile," Estudios de Economia, University of Chile, Department of Economics, vol. 31(2 Year 20), pages 177-205, December.

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