This paper examines whether the stock market valuation impact is consistent with subsequent operating performance of firms. We use data for equity rights offerings - the widely adopted flotation method in the Netherlands. We first examine the stock market announcement effect of rights issues and observe that a statistically significant stock price decline takes place when companies announce rights issues. Further stock price decline is also observed during the subscription period. We then analyze post-rights issue operating performance of firms and find that, consistent with the announcement period decline in stock price, rights issuing firms subsequently exhibit a statistically significant decline in their operating performance. Additional investigation of both stock and operating performance decline provides full support for the information asymmetry hypothesis, partial support for the free cash flow hypothesis but no support for the window of opportunity hypothesis.

equity offerings, firm performance, rights issues, valuation effect
Information and Market Efficiency; Event Studies (jel G14), Corporate Finance and Governance (jel G3), Financing Policy; Capital and Ownership Structure (jel G32), Business Administration and Business Economics; Marketing; Accounting (jel M), Accounting (jel M41)
Erasmus Research Institute of Management
ERIM Report Series Research in Management
Copyright 2002, R. Kabir, P. Roosenboom, This report in the ERIM Report Series Research in Management is intended as a means to communicate the results of recent research to academic colleagues and other interested parties. All reports are considered as preliminary and subject to possibly major revisions. This applies equally to opinions expressed, theories developed, and data used. Therefore, comments and suggestions are welcome and should be directed to the authors.
Erasmus Research Institute of Management

Kabir, R, & Roosenboom, P.G.J. (2002). Can the stock market anticipate future operating performance? Evidence from equity rights issues (No. ERS-2002-102-F&A). ERIM Report Series Research in Management. Erasmus Research Institute of Management. Retrieved from