Is the market surprised by poor earnings realizations following seasoned equity offerings?

We examine the stock price reaction to earnings announcements in the five y ears following seasoned equity offerings (SEOs). On average, post-SEO earni ngs announcements are met with a significantly negative abnormal stock pric e reaction. Although this negative reaction accounts for a disproportionate ly large portion of long-run post-SEO abnormal stock returns, on average, a bnormal stock price reactions to post-SEO earnings announcements are reliab ly negative only within the smallest quartile of equity issuers. For small firms, therefore, these findings are broadly consistent with the hypothesis that firms issue equity when the market overestimates the firm's future ea rnings performance.