Do firms knowingly sell overvalued equity?

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This article examines the relation between top executives' trading and the long-run stock returns of seasoned equity issuing firms. Primary issuers, who sell mostly newly-issued primary shares, significantly underperform their benchmarks, regardless of the top executives' prior trading pattern. However, top executives' trading is reliably associated with the stock returns of secondary issuers, who sell mostly secondary shares previously held by existing shareholders. On average, secondary issuers do not underperform their benchmarks. The results suggest;hat increased free cash flow problems after issue play an important role in explaining the underperformance of issuing firms.
Publisher
AMER FINANCE ASSN
Issue Date
1997-09
Language
English
Article Type
Article
Keywords

MARKET-EFFICIENCY; STOCK RETURNS; ISSUES; INFORMATION; OFFERINGS; ISSUANCE; INSIDERS

Citation

JOURNAL OF FINANCE, v.52, no.4, pp.1439 - 1466

ISSN
0022-1082
DOI
10.2307/2329442
URI
http://hdl.handle.net/10203/78198
Appears in Collection
MT-Journal Papers(저널논문)
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