Is the Market Surprised by Poor EarningsRealizations following Seasoned EquityOfferings?

Abstract

We examine the stock price reaction to earningsannouncements in the five years following seasonedequity offerings (SEOs). On average, post-SEOearnings announcements are met with a significantlynegative abnormal stock price reaction. Althoughthis negative reaction accounts for adisproportionately large portion of long-runpost-SEO abnormal stock returns, on average,abnormal stock price reactions to post-seo earningsannouncements are reliably negative only within thesmallest quartile of equity issuers. For smallfirms, therefore, these findings are broadlyconsistent with the hypothesis that firms issueequity when the market overestimates the firm'sfuture earnings perfomance.