Seasoned public offerings: Resolution of the "new issues puzzle"

@article{Eckbo2000SeasonedPO,
  title={Seasoned public offerings: Resolution of the "new issues puzzle"},
  author={B. Eckbo and Ronald W. Masulis and Oyvind Norli},
  journal={Journal of Financial Economics},
  year={2000},
  volume={56},
  pages={251-291}
}
The 'new issues puzzle' is that stocks of common stock issuers subsequently underperform nonissuers matched on size and book-to-market ratio. With 7000 seasoned equity and debt issues, we document that issuer underperformance reflects lower systematic risk exposure for issuing firms relative to the matches. A consistent explanation is that, as equity issuers lower leverage, their exposures to unexpected inflation and default risks decrease, thus decreasing their stocks' expected returns… Expand
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