Upfront Transfer, Investor Sentiment, and Stock Performance
The upfront transfer refers to the difference between the funds raised in financial markets and the funds actually invested in real economy. We provide a simple framework for analyzing a firm抯 upfront financing decisions. We argue that only the irrational investors always have an increasing utility function in the upfront transfer. They irrationally invest too much in the firms that, (1). demonstrate superior pre-issue stock performance and (2). acquire large amount of capital. As a result, the irrational investors dominate in the firms with highly positive upfront transfer. On the other hand, the firms with slightly positive upfront transfer provide good financial flexibility for firms?investment. Moreover, the firms with negative upfront transfer tend to signal strong earning power or ample internal funds. The framework thus predicts a negative relationship between the upfront transfer and the post-issue long-term stock performance. Using 2066 firms conducting primary seasoned equity offering (primary SEO firms) and 802 firms conducting seasoned debt offering (SDO firms) between 1985 and 1996, we find strong evidence supporting the above predictions. Our extensive robustness checks further confirm our findings. One of the most important policy implications is that securities exchange authorities should limit such exploiting strategies that could hurt both firm values and investor values.
upfront transfer corporate investment financing decisions investor sentiment stock performance
Zhikun Li
Department of Finance, School of Economics and Management, Tsinghua University, Beijing 100084, China
国际会议
西安
英文
1-47
2006-07-17（万方平台首次上网日期，不代表论文的发表时间）