The Puzzle of Frequent and Large Issues of Debt and Equity

Abstract

More frequent, larger, and more recent debt and equity issues in the prior three fiscal years are followed by lower stock returns in the subsequent year. The intercept of a q-factor calendar-time regression for the value-weighted portfolio of firms with at least three large issues is -0.63% per month (t-statistic =-4.31). Purging the factor returns of recent issuers increases the magnitude of the estimated underperformance following frequent equity issues. A value-weighted Fama-MacBeth regression shows that firms with three equity issues underperform non-issuers by 0.65% per month (t-statistic =-2.65). Earnings announcement returns are low following frequent issues, especially equity issues.