Understanding stock price behavior around external financing

Cao, Min and Martin, Spencer and Yao, Chelsea (2025) Understanding stock price behavior around external financing. Journal of Corporate Finance, 91: 102730. ISSN 0929-1199

Text (Understanding Stock Price Behavior around External Financing_20241223)
Understanding_Stock_Price_Behavior_around_External_Financing_20241223.pdf - Accepted Version
Available under License Creative Commons Attribution.
Download (1MB)

Abstract

The negative association between pre-financing price run-ups and post-financing price drift-downs is well documented in the literature. We find that firms experiencing pre-financing run-ups and firms experiencing post-financing long-term underperformance may not always be the same firms. The firms with high levels of cash flows experience pre-financing price run-ups but do not suffer post-financing price drift-downs. On the other hand, firms with low cash flow levels do not have pre-financing price run-ups but experience post-financing long-term underperformance even after controlling for various well-documented anomalies. Profitability analyses around external financing suggest that high-cash-flow firms' pre-financing price run-ups could be driven by their robust profitability, whereas low-cash-flow firms' post-financing underperformance might be attributable to their losses.