Alon Brav
Duke University, Durham, NC 27708
Christopher Geczy
University of Chicago, Chicago, IL 60637
Paul A. Gompers
Harvard University, Cambridge, MA
ABSTRACT
We investigate the robustness of the long-run underperformance of seasoned equity offering (SEO) firms in a sample of 3,931 events from 1975-1992. The 30% underperformance documented by Loughran and Ritter (1996) and Spiess and Affleck-Graves (1995) is significantly reduced when other benchmarks and return calculations are used. Wealth relatives for equal-weighted five year buy-and-hold returns are 0.82 relative to the S&P 500 over the entire sample period. When SEO returns are value-weighted, wealth relatives versus broad market indexes and industry portfolios increase substantially. Cross-sectional examination of returns shows that underperformance is concentrated in small firms and firms with low book-to-market ratios. Our results point to important tests that may help determine the microeconomic foundations of multifactor asset pricing models and long-run anomalies including value/glamour strategy returns.