We examine whether the market reaction to announcements by banking firms of repeat seasoned stock issues differs from that of first-stage issues. We find that the valuation effect of repeat issues is significantly negative. In contrast, earlier first-stage issues by these banking firms generate normal returns. This evidence supports the Gale and Stiglitz (1989) hypothesis that repeat common stock issues reveal negative private information that cannot be discerned in first-stage issues. The evidence also indicates that the impact of repeat issues is conditioned on the banking firm's capital position.
ASJC Scopus subject areas
- Economics and Econometrics