The Puzzle of Frequent and Large Issues of Debt and Equity

Rongbing Huang, Kennesaw State University
Jay R. Ritter, University of Florida


More frequent, larger, and more recent debt and equity issues in the prior 3 fiscal years are followed by lower stock returns in the subsequent year. The intercept of a q-factor calendar-time regression for the value-weighted (VW) portfolio of firms with at least 3 large issues is -0.63% per month (t-stat. = -4.31). Purging the factor returns of recent issuers increases the magnitude of the estimated underperformance following frequent equity issues. A VW Fama-MacBeth regression shows that firms with 3 equity issues underperform nonissuers by 0.65% per month (t-stat. = -2.65). Earnings announcement returns are low following frequent issues, especially equity issues.