《金融投资学》教学资源（英文文献）The long-run performance of stock returns following debt offerings.pdf

46 D.K.Spiess,J.Affleck-Graves Journal of Financial Economics 54 (1999)45-73 1.Introduction Several studies document significant long-run abnormal returns following stock issues and stock repurchases.Ritter (1991)and Loughran(1993)find that firms making initial public offerings significantly underperform non-issuing firms for up to five years after going public.Loughran and Ritter(1995)and Spiess and Affleck-Graves(1995)find similar underperformance in the five years following seasoned equity offerings.This underperformance exceeds 30%over a five-year period for both initial public offerings and seasoned equity offerings. Ikenberry et al.(1995)report significant positive abnormal returns of 12%in the four-year period following stock repurchases. An important aspect of these studies is that the long-term drift in stock returns is in the same direction as the initial reaction of the stock price at the time of the announcement,which suggests that the market,on average,under- reacts at the time of an announcement.Daniel et al.(1998)present a theoretical model based on well-known psychological biases that is consistent with inves- tors'underreaction to information events.Barberis et al.(1998)and Odean (1998)also present theoretical models of investor under-or overreaction to information.As a result,prior studies that focus on returns at the time of the announcement may be inadequate,and it may be necessary to examine perfor- mance over an extended period following an event to determine the full impact of that event. In this study,we examine the long-term performance of stocks following both straight and convertible debt offerings and find that prior studies of announce- ment period returns tell an incomplete story.Earlier studies such as Dann and Mikkelson (1984),Eckbo (1986),and Mikkelson and Partch (1986)find an insignificantly negative reaction to the announcement of straight debt offerings and conclude that straight debt issuance,on average,has no impact on share- holder wealth.Unlike the announcement period literature,we conclude that firms that are overvalued are likely to issue securities of any type,and that debt offerings,like equity offerings,are a signal that the firm is overvalued.Using a carefully constructed sample of 392 straight debt issuers over the period from 1975 to 1989,we find that the median sample firm underperforms a matched firm of similar size and book-to-market ratio by almost 19%in the five years following the debt offering. Firms issuing convertible debt also exhibit significant stock price underper- formance,and the magnitude of the response is quite similar to previously documented underperformance of equity issuers.In our sample of 400 convert- ible debt issuers,the median firm underperforms its matched counterpart by almost 20%in the five years following the convertible debt offering,while the mean holding-period return for sample firms is 37%less than the mean for the matched control firms.Dann and Mikkelson (1984)find a significant negative reaction at the announcement of convertible debt offerings.Our results confirm

1. Introduction Several studies document signi"cant long-run abnormal returns following stock issues and stock repurchases. Ritter (1991) and Loughran (1993) "nd that "rms making initial public o!erings signi"cantly underperform non-issuing "rms for up to "ve years after going public. Loughran and Ritter (1995) and Spiess and A%eck-Graves (1995) "nd similar underperformance in the "ve years following seasoned equity o!erings. This underperformance exceeds 30% over a "ve-year period for both initial public o!erings and seasoned equity o!erings. Ikenberry et al. (1995) report signi"cant positive abnormal returns of 12% in the four-year period following stock repurchases. An important aspect of these studies is that the long-term drift in stock returns is in the same direction as the initial reaction of the stock price at the time of the announcement, which suggests that the market, on average, underreacts at the time of an announcement. Daniel et al. (1998) present a theoretical model based on well-known psychological biases that is consistent with investors' underreaction to information events. Barberis et al. (1998) and Odean (1998) also present theoretical models of investor under- or overreaction to information. As a result, prior studies that focus on returns at the time of the announcement may be inadequate, and it may be necessary to examine performance over an extended period following an event to determine the full impact of that event. In this study, we examine the long-term performance of stocks following both straight and convertible debt o!erings and "nd that prior studies of announcement period returns tell an incomplete story. Earlier studies such as Dann and Mikkelson (1984), Eckbo (1986), and Mikkelson and Partch (1986) "nd an insigni"cantly negative reaction to the announcement of straight debt o!erings and conclude that straight debt issuance, on average, has no impact on shareholder wealth. Unlike the announcement period literature, we conclude that "rms that are overvalued are likely to issue securities of any type, and that debt o!erings, like equity o!erings, are a signal that the "rm is overvalued. Using a carefully constructed sample of 392 straight debt issuers over the period from 1975 to 1989, we "nd that the median sample "rm underperforms a matched "rm of similar size and book-to-market ratio by almost 19% in the "ve years following the debt o!ering. Firms issuing convertible debt also exhibit signi"cant stock price underperformance, and the magnitude of the response is quite similar to previously documented underperformance of equity issuers. In our sample of 400 convertible debt issuers, the median "rm underperforms its matched counterpart by almost 20% in the "ve years following the convertible debt o!ering, while the mean holding-period return for sample "rms is 37% less than the mean for the matched control "rms. Dann and Mikkelson (1984) "nd a signi"cant negative reaction at the announcement of convertible debt o!erings. Our results con"rm 46 D.K. Spiess, J. A{eck-Graves / Journal of Financial Economics 54 (1999) 45}73

D.K.Spiess,J.Affleck-Graves Journal of Financial Economics 54 (1999)45-73 47 that convertible debt offerings convey negative information to the market,but they suggest that the market underreacts at the time of the announcement.The similarity of the post-offering stock price response of convertible debt issuers to that of seasoned equity issuers supports the conclusion by Stein(1992)that convertible debt is used as a backdoor'equity substitute. Similar to previously documented evidence for equity offerings,we find that the post-issue underperformance of straight debt issuers is concentrated among smaller,younger,and NASDAQ-listed firms.For the largest straight debt issuers in our sample there is no underperformance.In addition,we find strong evidence that underperformance for both straight and convertible firms is limited to issues that occur in periods with a high volume of issues.This is consistent with Loughran and Ritter's(1998)claim that firm misvaluations that drive managerial choice events (e.g.,equity issues)are likely to be correlated among firms with similar characteristics,particularly smaller firms,and to display time-and industry-clustering. While our results suggest significant underreaction to the announcement of both straight and convertible debt offerings,an alternative explanation is that debt-issuing firms are systematically less risky than their nonissuing counter- parts.We attempt to control for risk differences by matching firms on the basis of size and book-to-market ratio.It is possible,however,that size and book-to- market ratio do not adequately capture the risk differences between issuers and matched non-issuers.Fama(1998)raises the issue of a bad model problem in his criticism of long-run event studies;he argues that the magnitude of abnormal returns in these studies is generally not robust to alternative specifications of expected returns or alternative subsets of the data. We address Fama's critique in two ways.First,we measure long-run perfor- mance using averages of short-run abnormal returns rather than long-run buy-and-hold returns.We do this in two ways-the 'rolling portfolio'approach recommended by Fama (1998)and the three-factor regression approach of Fama and French (1993).Using equally weighted portfolios,both of these methods yield results consistent with our buy-and-hold evidence of significant underperformance following both straight and convertible debt offerings.Sec- ond,in the context of buy-and-hold returns,we examine two alternative bench- marks of expected returns-individual matched firms chosen on the basis of industry and firm size,and the reference portfolio approach suggested by Lyon et al.(1998).Again,we find evidence of significant underperformance following both straight and convertible debt offerings.Thus,while we are ultimately unable to disentangle these two non-competing explanations-market underreaction versus a bad model problem-we do present strong evidence that our results are robust across a number of reasonable specifications and methodologies. A few other recent studies also report long-run performance following debt offerings.Cheng (1995)and Jung et al.(1995)find positive,but statistically insignificant,average long-run returns.Jewell and Livingston (1997)likewise

that convertible debt o!erings convey negative information to the market, but they suggest that the market underreacts at the time of the announcement. The similarity of the post-o!ering stock price response of convertible debt issuers to that of seasoned equity issuers supports the conclusion by Stein (1992) that convertible debt is used as a &backdoor' equity substitute. Similar to previously documented evidence for equity o!erings, we "nd that the post-issue underperformance of straight debt issuers is concentrated among smaller, younger, and NASDAQ-listed "rms. For the largest straight debt issuers in our sample there is no underperformance. In addition, we "nd strong evidence that underperformance for both straight and convertible "rms is limited to issues that occur in periods with a high volume of issues. This is consistent with Loughran and Ritter's (1998) claim that "rm misvaluations that drive managerial choice events (e.g., equity issues) are likely to be correlated among "rms with similar characteristics, particularly smaller "rms, and to display time- and industry-clustering. While our results suggest signi"cant underreaction to the announcement of both straight and convertible debt o!erings, an alternative explanation is that debt-issuing "rms are systematically less risky than their nonissuing counterparts. We attempt to control for risk di!erences by matching "rms on the basis of size and book-to-market ratio. It is possible, however, that size and book-tomarket ratio do not adequately capture the risk di!erences between issuers and matched non-issuers. Fama (1998) raises the issue of a bad model problem in his criticism of long-run event studies; he argues that the magnitude of abnormal returns in these studies is generally not robust to alternative speci"cations of expected returns or alternative subsets of the data. We address Fama's critique in two ways. First, we measure long-run performance using averages of short-run abnormal returns rather than long-run buy-and-hold returns. We do this in two ways } the &rolling portfolio' approach recommended by Fama (1998) and the three-factor regression approach of Fama and French (1993). Using equally weighted portfolios, both of these methods yield results consistent with our buy-and-hold evidence of signi"cant underperformance following both straight and convertible debt o!erings. Second, in the context of buy-and-hold returns, we examine two alternative benchmarks of expected returns } individual matched "rms chosen on the basis of industry and "rm size, and the reference portfolio approach suggested by Lyon et al. (1998). Again, we "nd evidence of signi"cant underperformance following both straight and convertible debt o!erings. Thus, while we are ultimately unable to disentangle these two non-competing explanations } market underreaction versus a bad model problem } we do present strong evidence that our results are robust across a number of reasonable speci"cations and methodologies. A few other recent studies also report long-run performance following debt o!erings. Cheng (1995) and Jung et al. (1995) "nd positive, but statistically insigni"cant, average long-run returns. Jewell and Livingston (1997) likewise D.K. Spiess, J. A{eck-Graves / Journal of Financial Economics 54 (1999) 45}73 47

48 D.K.Spiess,J.Affleck-Graves Journal of Financial Economics 54 (1999)45-73 find no evidence of underperformance in the three years following straight debt offerings for most classes of debt issues (the exception being 68 B-rated issues which have significant underperformance).All three of these studies,however, use some form of cumulative abnormal return metric,and Lyon et al.(1998) show that such metrics can lead to biased test statistics.Lee and Loughran (1998)examine only convertible debt offerings and find long-term underperfor- mance similar to that documented for our convertible debt sample.Finally, Dichev and Piotroski(1997)document significant underperformance in the five years following both straight and convertible debt offerings.Their study differs from ours,however,in three important aspects.First,they include both public and private debt offerings in their sample,but are unable to separate the performance of the two groups.Second,they provide evidence of underperfor- mance only for the quintile of firms with the largest debt offerings(relative to assets),and not for all debt offerings.Third,because of their inclusion of private debt,they are unable to ascertain the exact date of the offering.Despite these differences,the Dichev and Piotroski study provides an important complement to our results.Our results show underperformance following public debt offer- ings.Because their sample is dominated by the much larger number of private debt placements relative to public offerings,it suggests a similar conclusion following large private debt placements. 2.Data and research methods 2.1.Sample construction The sample consists of straight and convertible debt offerings during the period from 1975 to 1989,as reported in Investment Dealers'Digest Directory of Corporate Financing.To be included,issues must meet the following criteria:(1) the company is listed on the Center for Research in Securities Prices(CRSP) daily tape at the time of the issue;(2)the company is not a regulated utility or a financial institution;(3)shares traded for the company are ordinary common shares(we omit ADRs,SBIs,REITs,and closed-end funds);(4)the issue does not include warrants;(5)the issue does not include unusual securitization (e.g.,no equipment trusts and mortgage-backed securities);and (6)the company has a non-negative book-to-market ratio available on COMPUSTAT for the fiscal year-end prior to the debt offering.Applying these criteria results in a sample of 2229 offerings,1557 straight debt offerings and 672 convertible debt offerings.There are 1061 different firms represented in the combined sample;641 of these make only one debt issue during the sample period,192 firms make two issues,90 firms make three issues,41 firms make four issues,29 firms make five issues,and 68 firms make more than five issues (ranging from six to 24). Because test statistics are based on the assumption that the observations are

"nd no evidence of underperformance in the three years following straight debt o!erings for most classes of debt issues (the exception being 68 B-rated issues which have signi"cant underperformance). All three of these studies, however, use some form of cumulative abnormal return metric, and Lyon et al. (1998) show that such metrics can lead to biased test statistics. Lee and Loughran (1998) examine only convertible debt o!erings and "nd long-term underperformance similar to that documented for our convertible debt sample. Finally, Dichev and Piotroski (1997) document signi"cant underperformance in the "ve years following both straight and convertible debt o!erings. Their study di!ers from ours, however, in three important aspects. First, they include both public and private debt o!erings in their sample, but are unable to separate the performance of the two groups. Second, they provide evidence of underperformance only for the quintile of "rms with the largest debt o!erings (relative to assets), and not for all debt o!erings. Third, because of their inclusion of private debt, they are unable to ascertain the exact date of the o!ering. Despite these di!erences, the Dichev and Piotroski study provides an important complement to our results. Our results show underperformance following public debt o!erings. Because their sample is dominated by the much larger number of private debt placements relative to public o!erings, it suggests a similar conclusion following large private debt placements. 2. Data and research methods 2.1. Sample construction The sample consists of straight and convertible debt o!erings during the period from 1975 to 1989, as reported in Investment Dealers+ Digest Directory of Corporate Financing. To be included, issues must meet the following criteria: (1) the company is listed on the Center for Research in Securities Prices (CRSP) daily tape at the time of the issue; (2) the company is not a regulated utility or a "nancial institution; (3) shares traded for the company are ordinary common shares (we omit ADRs, SBIs, REITs, and closed-end funds); (4) the issue does not include warrants; (5) the issue does not include unusual securitization (e.g., no equipment trusts and mortgage-backed securities); and (6) the company has a non-negative book-to-market ratio available on COMPUSTAT for the "scal year-end prior to the debt o!ering. Applying these criteria results in a sample of 2229 o!erings, 1557 straight debt o!erings and 672 convertible debt o!erings. There are 1061 di!erent "rms represented in the combined sample; 641 of these make only one debt issue during the sample period, 192 "rms make two issues, 90 "rms make three issues, 41 "rms make four issues, 29 "rms make "ve issues, and 68 "rms make more than "ve issues (ranging from six to 24). Because test statistics are based on the assumption that the observations are 48 D.K. Spiess, J. A{eck-Graves / Journal of Financial Economics 54 (1999) 45}73

D.K.Spiess,J.Affleck-Graves Journal of Financial Economics 54 (1999)45-73 49 independent,we restrict our analysis to the subset of observations for which there is no overlap of the five-year post-offering windows for repeat issues.Using all observations and ignoring the statistical problems caused by overlapping returns,however,yields qualitatively identical results.The resulting sample consists of 792 independent issues,392 straight debt offerings and 400 convert- ible debt offerings. In Table 1 we present the distribution by year for our full sample of debt offerings and for the restricted sample of independent offerings.The number of offerings fluctuates from year to year and is similar to the pattern of equity offerings that Spiess and Affleck-Graves(1995)and Loughran and Ritter (1995)find during this time period.As with equity offerings,there were more issues during the 1980s than during the last half of the 1970s,especially during 1986. Table 1 Distribution of debt offerings by year The sample includes all debt offerings reported in Investment Dealers'Digest Directory of Corporate Financing over the period 1975-1989 that meet the following criteria:(1)The company is listed on the CRSP daily NYSE,Amex and NASDAQ tape at the time of the issue;(2)the company is not a regulated utility or a financial institution;(3)the shares traded for the company are ordinary common shares (ADRs,SBIs,REITs,and closed-end funds are omitted;(4)the issue does not include warrants;and(5)the issue does not include unusual securitization(e.g,equipment trusts and mortgage-backed securities are omitted).Independent offerings are those for which the firm has not made any other debt issues during the five years following the sample offering Year Total number Straight debt Convertible debt of offerings All Independent All Independent offerings offerings offerings offerings 1975 112 100 60 12 9 1976 71 57 23 14 1977 60 50 24 10 4 1978 1979 83 64 516 14 12 1980 91 1981 111 60 11 1961 24 1982 145 100 24 1983 152 90 2 29 1984 125 94 12 1985 241 165 32 1 4 1986 377 248 1987 239 145 92 129 91 1988 140 120 25 20 13 1989 158 119 1 3 Total 2229 1557 392 672 400

Table 1 Distribution of debt o!erings by year The sample includes all debt o!erings reported in Investment Dealers+ Digest Directory of Corporate Financing over the period 1975}1989 that meet the following criteria: (1) The company is listed on the CRSP daily NYSE, Amex and NASDAQ tape at the time of the issue; (2) the company is not a regulated utility or a "nancial institution; (3) the shares traded for the company are ordinary common shares (ADRs, SBIs, REITs, and closed-end funds are omitted); (4) the issue does not include warrants; and (5) the issue does not include unusual securitization (e.g., equipment trusts and mortgage-backed securities are omitted). Independent o!erings are those for which the "rm has not made any other debt issues during the "ve years following the sample o!ering Year Total number Straight debt Convertible debt of o!erings All o!erings Independent o!erings All o!erings Independent o!erings 1975 112 100 60 12 9 1976 71 57 23 14 8 1977 60 50 24 10 4 1978 78 64 25 14 8 1979 73 54 16 19 12 1980 147 91 34 56 32 1981 111 60 11 51 24 1982 145 100 11 45 24 1983 152 90 24 62 29 1984 125 94 15 31 12 1985 241 165 32 76 44 1986 377 248 49 129 91 1987 239 145 25 94 64 1988 140 120 25 20 13 1989 158 119 18 39 26 Total 2229 1557 392 672 400 independent, we restrict our analysis to the subset of observations for which there is no overlap of the "ve-year post-o!ering windows for repeat issues. Using all observations and ignoring the statistical problems caused by overlapping returns, however, yields qualitatively identical results. The resulting sample consists of 792 independent issues, 392 straight debt o!erings and 400 convertible debt o!erings. In Table 1 we present the distribution by year for our full sample of debt o!erings and for the restricted sample of independent o!erings. The number of o!erings #uctuates from year to year and is similar to the pattern of equity o!erings that Spiess and A%eck-Graves (1995) and Loughran and Ritter (1995) "nd during this time period. As with equity o!erings, there were more issues during the 1980s than during the last half of the 1970s, especially during 1986. D.K. Spiess, J. A{eck-Graves / Journal of Financial Economics 54 (1999) 45}73 49