Handbook of Corporate Finance Empirical Corporate Finance Volume 1

Ch. 6: Security Offerings 345

Ta b l e 1 8
Average difference in equal-weighted buy-and-hold returns for U.S. issuers (BHRi) and size- and book-to-
market matched control firms (BHRm)

Study Issuer
type

Sample

size

Sample

period

Holding

period

BHRi

−BHRm

A. IPOs

Brav and Gompers (1997) All 3 , 407 1972–1992 5 yrs 1 .9%a
Brav and Gompers (1997) All 934 1972–1992 5 yrs 16 .5%∗b
Brav, Geczy, and Gompers (2000) All 3 , 501 1975–1992 5 yrs 6 .6%
Ritter and Welch (2002) All 6 , 249 1980–2001 3 yrs − 5 .1%
Eckbo and Norli (2005) All 5 , 365 1972–1998 5 yrs − 2 .4%

B. SEOs

Spiess and Affleck-Graves (1995) All 1 , 247 1975–1989 3 yrs − 22 .8%∗
Lee (1997) All 1 , 513 1976–1990 3 yrs − 20 .3%∗c
Jegadeesh (2000) All 2 , 992 1970–1993 5 yrs − 34 .3%∗
Brav, Geczy, and Gompers (2000) All 3 , 775 1975–1992 5 yrs − 26 .3%∗
Eckbo, Masulis, and Norli (2000) Ind 3 , 851 1964–1995 5 yrs − 23 .2%∗
Kahle (2000) Ind 1 , 739 1981–1992 3 yrs − 14 .7%∗
Clarke, Dunbar, and Kahle (2001) All 3 , 092 1984–1996 3 yrs − 14 .3%∗d
Clarke, Dunbar, and Kahle (2001) All 174 1984–1996 3 yrs − 3 .3%∗e

C. Private placements of equity

Hertzel et al. (2002) All 591 1980–1996 3 yrs − 23. 8 ∗
Krishnamurthy et al. (2005) All 275 1983–1992 3 yrs − 38 .4%∗f
Krishnamurthy et al. (2005) All 273 1983–1992 3 yrs − 1 .24%g

D. Straight debt offerings

Spiess and Affleck-Graves (1999) All 392 1975–1989 5 yrs − 14 .3%
Kahle (2000) Ind 523 1981–1992 3 yrs − 9 .5%
Eckbo, Masulis, and Norli (2000) Ind 981 1964–1995 5 yrs − 11 .2%
Eckbo, Masulis, and Norli (2000) Util 348 1964–1995 5 yrs − 10 .4%∗
Butler and Wan (2005) Ind 799 1975–1999 5 yrs − 24 .0%∗h

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(Lee and Loughran, 1998; Spiess and Affleck-Graves, 1999; Kahle, 2000; Lewis, Ro-
galski, and Seward, 2001). For straight debt offerings, however, the literature shows
insignificant long-run performance (Spiess and Affleck-Graves, 1999; Kahle, 2000, and
industrial issuers inEckbo, Masulis, and Norli, 2000). This contrasts with the results
inTable 17where debt issuers significantly underperform non-issuing matched firms.
While the magnitudes of the abnormal returns are similar for straight debt issues inTa -
ble 17 and Table 18, the much larger sample size inTable 17appears to provide greater
precision, causing the null of zero abnormal performance to be rejected at the 0.1%
level or better.
Measurement problems aside, underperformance following straight debt issues rep-
resents an enigma: there is little adverse selection as the choice of debt over equity is