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Rev Fin 2002; 15:1385-1406
© 2002 the Society for Financial Studies

The Long-Term Performance of Corporate Bonds (and Stocks) Following Seasoned Equity Offerings

Allan C. Eberhart and Akhtar Siddique
Georgetown University

Address correspondence to: Allan Eberhart or Akhtar Siddique, McDonough School of Business, Georgetown University, Washington, DC 20057, or e-mail: eberhara{at}msb.edu or siddiqua{at}msb.edu.

Abstract

Previous studies document negative long-term abnormal stock returns following seasoned equity offering (SEO) issuances and conclude that markets are inefficient. Other studies, however, argue that these results are a manifestation of risk mismeasurement (i.e., the bad-model problem), not market inefficiency. We test the efficient market hypothesis (EMH) and avoid the bad-model problem by examining the long-term performance of our sample firms' bonds and stocks following their SEOs. Our results are inconsistent with the EMH. We also provide evidence that SEOs transfer wealth from shareholders to bondholders because SEOs reduce default risk.


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