Alon Brav
Duke University, Durham, NC
Christopher Geczy
University of Pennsylvania
Paul Gompers
Harvard University
ABSTRACT
We examine whether a distinct equity issuer underperformance anomaly exists. In a sample of initial public offering (IPO) and seasoned equity offering (SEO) firms from 1975 to 1992, we find that underperformance is concentrated primarily in small issuing firms. 1POfirms have long-run returns that are similar to nonissuing firms matched on the basis of firm size and book-to-market ratios. Similarly, SEO firms which underperform standard benchmarks have time series returns that mirror nonequity issuing firms. We also present evidence supporting Fama's (1998) bad-model problem. Our results indicate that a number of long-run performance anomalies documented recently may be a manifestation of a more pervasive return pattern present in the universe of stocks.
JEL Classification: Gl, G2
Key Words: Seasoned equity offerings, initial public offerings, long-run underperformance, anomalies.