POST OFFERING EARNINGS PERFORMANCE OF FIRMS THAT ISSUE SEASONED EQUITY - THE ROLE OF GROWTH OPPORTUNITIES

This study finds that growth firms experience significant unanticipate d deterioration in their earnings performance following their seasoned equity offerings (SEO), but mature firms do not share the same negati ve experience. This finding is consistent with the finding of long run Post offering stock price underperformance documented in the literatu re. However, it is inconsistent with the findings of a weak positive i mpact of growth opportunities on the stock price reaction to the SEO a nnouncement. The negative role of growth opportunities also contradict s the predictions of signaling models that growth potential of the iss uing firm has a positive impact on the information content of the SEO. Overall, the findings in this study are consistent with the general i mplication of the overvaluation hypothesis that managers issue equity securities when they know their firm is not as valuable as what the ma rket believes.