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The Long‐Run Performance of Secondary Equity Issues: A Test of the Windows of Opportunity Hypothesis

Jonathan Clarke, Craig Dunbar and Kathleen Kahle
The Journal of Business
Vol. 77, No. 3 (July 2004), pp. 575-603
DOI: 10.1086/386531
Stable URL:
Page Count: 29
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We examine long‐run stock and operating performance following secondary equity offerings. For a subsample of issuers in which the seller is an insider, both 3‐ and 5‐year post‐issue abnormal stock returns are significantly negative. The findings are robust to alternative long‐run abnormal return measurement methodologies. The abnormal returns are large relative to the initial market reaction (the mean 5‐year abnormal returns is −33.33%). The operating performance of these firms also declines subsequent to the issue. This supports the hypothesis that the negative performance of secondary equity offerings can be attributed to managers exploiting “windows of opportunity” by issuing overvalued shares.

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