The Long-Run Performance Following Securities Offerings

We examine the long-run performances of stock returns, operating performance, and Tobin’s Q following firms' issuances of straight debt, convertible debt, and common stock from 1990 to 2006 in Korea. The long-run performances show that common stock and convertible debt issuers suffer underperformance during the post-issue periods. However, we cannot find the underperformance problem for straight debt issuers. An increase in capital investments following the issuance is associated with superior performance. Our findings are consistent with Myers and Majluf(1984) model and Cooney and Kalay(1993) model. Firms with larger offerings have poorer stock returns, operating performance, and Tobin’s Q subsequent to issuance. This study also supports Miller and Rock(1985) model. Surprisingly, the empirical results of Korea are very similar to those of the U.S.