• HFRC Forschung

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Publication Equity issues and stock repurchases of initial public offerings

Type

Refereed Article

Year

2014

Author(s)

Wolfgang Bessler
Wolfgang Drobetz
Martin Seim
Jan Zimmermann

Journal

European Financial Management

Volume

Forthcoming

Pages

-

Research Area

Corporate Finance

Keywords

Initial public offerings, Share repurchases, Seasoned equity offerings, Valuation effects

Abstract

We investigate the financing strategies and valuation effects of 247 IPO firms at the ‘Neuer Markt’ in Germany that either issued additional equity (SEO) or repurchased shares (SRP) within five years after going public. IPOs issuing additional equity exhibit a temporary outperformance before the event, but negative announcement returns and a long‐run underperformance. In contrast, repurchasing IPOs experience positive announcement returns and no long‐run underperformance. Free cash flow problem resulting from mandatory equity issuance at the IPO explain the SRP decision. Our findings for SEOs are consistent with a staged financing strategy, while we find no evidence for market timing.

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