Working Paper: NBER ID: w11459
Authors: Evgeny Lyandres; Le Sun; Lu Zhang
Abstract: Adding a return factor based on capital investment into standard, calendar-time factor regressions makes underperformance following seasoned equity offerings largely insignificant and reduces its magnitude by 37-46%. The reason is that issuers invest more than nonissuers matched on size and book-to-market. Moreover, the low-minus-high investment-to-asset factor earns a significant average return of 0.37% per month. Our evidence suggests that the underperformance results from the negative investment-expected return relation, as predicted by Carlson, Fisher, and Giammarino (2005).
Keywords: No keywords provided
JEL Codes: E22; E44; G12; G14; G24; G31; G32
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| capital investment (E22) | expected returns (G17) |
| higher investment-to-asset ratios (G31) | lower expected returns (G19) |
| SEO underperformance (L25) | capital investment (E22) |
| stronger shareholder rights (G38) | more pronounced negative investment-return relation (G40) |
| issuers (G24) | higher market and book leverage (G32) |