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- Title
Overinvestment and the Operating Performance of SEO Firms.
- Authors
Fu, Fangjian
- Abstract
Prior studies have documented that firms' operating performance deteriorates following seasoned equity offerings (SEOs). This paper proposes and empirically tests the hypothesis that this poor performance is the result of managers' overinvestment. I find that, subsequent to the offering, SEO firms tend to invest more heavily than nonissuing control firms that are in the same industry and have enough financial slack and similar investment opportunities. More importantly, I find a negative correlation between postissue investment and operating performance, controlling for investment opportunities and preissue performance. Overinvestment results in a reduction in asset productivity and is more severe for firms with relatively fewer investment opportunities.
- Subjects
SEASONED equity offerings; HYPOTHESIS; EQUITY (Law); INVESTMENT management; ASSET management; RETURN on assets; MANAGEMENT audit; OPERATIONAL risk; STOCKS (Finance); MARKETING; MANAGEMENT
- Publication
Financial Management (Wiley-Blackwell), 2010, Vol 39, Issue 1, p249
- ISSN
0046-3892
- Publication type
Article
- DOI
10.1111/j.1755-053X.2010.01072.x