JMF Capstone Wealth ManagementEquity Offerings & Tail Risk – JMF Capstone Wealth Management https://www.jmfcapstone.com An Alabama registered investment advisor Fri, 21 Nov 2025 19:30:19 +0000 en-US hourly 1 https://wordpress.org/?v=5.1.22 Equity Offerings & Tail Risk https://www.jmfcapstone.com/2016/05/23/equity-offerings-tail-risk/ https://www.jmfcapstone.com/2016/05/23/equity-offerings-tail-risk/#respond Mon, 23 May 2016 09:00:40 +0000 http://evolvemypractice.com/?p=2801 It’s logical to believe that corporate managers have a preference for issuing equity at times they perceive their firm’s stock price is overvalued or high relative to some benchmark (such as price-to-earnings ratio or book-to-market ratio). The academic research on the subject supports this hypothesis—seasoned equity offerings (SEOs) do tend to be preceded by unusually...

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]]> It’s logical to believe that corporate managers have a preference for issuing equity at times they perceive their firm’s stock price is overvalued or high relative to some benchmark (such as price-to-earnings ratio or book-to-market ratio). The academic research on the subject supports this hypothesis—seasoned equity offerings (SEOs) do tend to be preceded by unusually high stock returns.

The academic research also shows there are incentives that can lead corporate managers to have a tendency to hoard bad news (for example, concerns about current-period performance-based compensation, prospects for promotion, future employment, post-retirement benefits such as directorships, the potential for termination, and the hope that subsequent positive events will allow them to “bury” the negative news).

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