Handbook of Corporate Finance Empirical Corporate Finance Volume 1

Ch. 6: Security Offerings 343

Ta b l e 1 7

Five-year buy-and-hold stock percent returns (BHR) for U.S. issuers and size- and book-to-market matched

control firms, 1980–2000

Equally-weightedBHR Value-weightedBHR

Type of security issued N Issuer Match Diff p(t) Issuer Match Diff p(t)

A. Issues by industrial firms (N= 20 ,262)

Initial public offerings 5 , 018 35. 753. 8 − 18. 00. 010 52. 867. 6 − 14. 80. 208

Seasoned equity offerings 4 , 971 49. 979. 5 − 29. 70. 000 79. 8 105. 7 − 26. 00. 026

Private placement of equity 506 13. 057. 1 − 44. 10. 000 31. 154. 1 − 23. 00. 223

Preferred equity 379 43. 896. 7 − 52. 90. 000 79. 1 113. 6 − 34. 50. 238

Convertible debt 897 46. 586. 9 − 40. 40. 006 46. 583. 6 − 37. 10. 068

Private placement of debt 4 , 228 76. 089. 2 − 13. 20. 002 87. 097. 0 − 10. 00. 282

Straight debt 4 , 263 77. 694. 6 − 17. 00. 000 71. 288. 0 − 16. 80. 000

B. Issues by banks and financial institutions (N= 16 ,521)

Initial public offerings 385 71. 751. 120. 60. 154 112. 150. 761. 50. 233

Seasoned equity offerings 655 98. 398. 30. 00. 999 75. 673. 42. 30. 870

Preferred equity 573 104. 672. 132. 50. 000 59. 548. 311. 10. 310

Private placement of debt 3 , 478 138. 086. 551. 50. 000 102. 450. 452. 00. 000

Straight debt 11 , 430 116. 076. 939. 20. 000 88. 240. 547. 80. 000

C. Issues by public utilities (N= 3 ,664)

Seasoned equity offerings 659 116. 3 135. 4 − 19. 10. 012 100. 6 132. 9 − 32. 30. 010

Preferred equity 460 79. 4 103. 0 − 23. 50. 000 70. 485. 1 − 14. 70. 104

Private placement of debt 878 87. 295. 2 − 8. 00. 270 44. 070. 6 − 26. 60. 002

Straight debt 1 , 667 75. 092. 9 − 17. 90. 000 63. 780. 7 − 17. 00. 001

Buy-and-hold percent returns are defined as:

BHR≡ωi

∑N

i= 1

[Ti

∏

t=τi

( 1 +Rit)− 1

]

× 100.

When equal-weighting,ωi≡ 1 /N, and when value-weighting,ωi=MVi/MV,whereMViis the issuer’s
common stock market value (in 1999 dollars) at the start of the holding period andMV=
∑
iMVi.The
abnormal buy-and-hold returns shown in the column marked “Diff” represent the difference between the
BHR in the “Issuer” and “Match” columns. The rows marked “N” contain number of issues. Thep-values
for equal-weighted abnormal returns arep-values of thet-statistic using a two-sided test of no difference in
average five-year buy-and-hold returns for issuer and matching firms. Thep-values for the value-weighted
abnormal returns are computed usingU≡ω′x/(σ

√

ω′ω),whereωis a vector of value weights andx

is the corresponding vector of differences in buy-and-hold returns for issuer and match. Assuming thatx

is distributed normalN(μ,σ^2 )and thatσ^2 can be consistently estimated using

∑

iωi(xi− ̄x)^2 ,where

x ̄=

∑

iωixi,Uis distributedN(^0 ,^1 ).

Table 17shows issuers on average underperform their matched firms whenBHR

is formed using equal-weights. For industrial issuers (Panel A), the five-year differ-