The Information Effects of Analyst Activity at the Announcement of New Equity Issues

Financial Management, Vol. 29, Issue 1, Spring 2000

Posted: 16 Jul 2001

See all articles by Ranjan D'Mello

Ranjan D'Mello

Wayne State University - Department of Finance

Stephen P. Ferris

University of Missouri at Columbia - Department of Finance

Abstract

Myers and Majluf (1984) argue that informational asymmetry between managers and investors can explain the negative stock returns around the announcement of new equity. Using analyst following and consensus as proxies for information asymmetry, we observe that announcement period returns are significantly more negative for firms followed by fewer analysts and whose forecasts exhibit less consensus. Our findings hold after controlling for firm size and growth opportunities. Finally, we find evidence suggesting that analyst activity also influences firms' long-term performance. We conclude that the information role of security analysts partially explains the negative stock returns surrounding the announcement of new equity.

Suggested Citation

D'Mello, Ranjan and Ferris, Stephen P., The Information Effects of Analyst Activity at the Announcement of New Equity Issues. Financial Management, Vol. 29, Issue 1, Spring 2000, Available at SSRN: https://ssrn.com/abstract=267722

Ranjan D'Mello (Contact Author)

Wayne State University - Department of Finance ( email )

328 Prentis Bldg.
5201 Cass Avenue
Detroit, MI 48202
United States
313-577-7828 (Phone)

Stephen P. Ferris

University of Missouri at Columbia - Department of Finance ( email )

214 Middlebush Hall
Columbia, MO 65211
United States
573-882-6272 (Phone)
573-884-6296 (Fax)

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