Article1990

Corporate Earnings and Financings: An Empirical Analysis

161 citations0/0 files storedThe Journal of Business

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Corporate Finance and Governance Financial Markets and Investment Strategies Financial Analysis and Corporate Governance

Abstract

This article examines the long-term behavior of corporate earnings around three corporate financing events: sales of common stock, convertible bonds, and straight bonds. The article shows that earnings declined for all issuers and that more capital is raised the larger the earnings decline. These findings indicate that external financings are motivated by earnings declines. No evidence is found of a relationship between the size of the subsequent earnings downturn or the amount of capital raised and stock price reactions to the financing announcements. These findings suggest that security sales did not systematically provide new information about either the magnitude of subsequent earnings downturn or the amount of financing. Copyright 1990 by the University of Chicago.

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References

1976Theory of the firm: Managerial behavior, agency costs and ownership structure 1984Corporate financing and investment decisions when firms have information that investors do not have 1977The Determination of Financial Structure: The Incentive-Signalling Approach 1980Optimal capital structure under corporate and personal taxation 1977DEBT AND TAXES*1982The Choice Between Equity and Debt: An Empirical Study 1981Common stock repurchases and market signalling 1986Investment banking and the capital acquisition process

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