Electronic copy available at: http://ssrn.

com/abstract=945977
Behavioral and rational explanations of stock price performance around SEOs: Evidence
from a decomposition of market-to-book ratios
*



Michael G. Hertzel
Department of Finance
W. P. Carey School of Business
Arizona State University
Phone: (480) 965-6869
Email: michael.hertzel@asu.edu


Zhi Li
Finance and Economics Department
A.B. Freeman School of Business
Tulane University
Phone: (504) 314-2488
Email: zli1@tulane.edu


Abstract

We examine the extent to which investment opportunities and/or mispricing motivates equity
issuance decisions and contributes to low post-issue stock returns. Using a methodology
developed in Rhodes-Kropf, Robinson, and Viswanathan (2005) to decompose market-to-book
ratios into misvaluation and growth option components, we find that issuing firms are both
overvalued and have greater growth opportunities relative to a comparison sample of non-issuing
firms. Issuing firms with greater growth opportunities invest more aggressively in capital
expenditures and R&D after the SEO, but do not experience lower post-issue abnormal stock
returns. In contrast, issuing firms with greater mispricing tend to decrease long-term debt and/or
increase cash holdings, and do earn lower post-issue abnormal returns. Our findings are more
consistent with behavioral explanations for post-issue stock price underperformance.



First Draft: August 30, 2006
This Draft: August 28, 2008


We thank Murray Carlson, Jeffrey Coles, Werner DeBondt, Erik Devos (FMA discussant), Stephan Dieckmann,
Mark Huson, Michael Lemmon, Evgeny Lyandres, Spencer Martin, Wayne Mikkelson, Micah Officer, Mitchell
Petersen, Jay Ritter, David Robinson (AFA discussant), Sunil Wahal and seminar participants at Arizona State
University, Claremont McKenna College, the DePaul University and Federal Reserve Bank of Chicago joint
research seminar, Lancaster University, the University of Alberta, the University of Florida, the University of
Oklahoma, the 2007 Financial Management Association meeting and the 2008 American Finance Association
meeting for helpful comments. Hertzel gratefully acknowledges financial support from the W. P. Carey School
of Business Deans Council of 100.
Electronic copy available at: http://ssrn.com/abstract=945977

Abstract
We examine the extent to which investment opportunities and/or mispricing motivates equity
issuance decisions and contributes to low post-issue stock returns. Using a methodology
developed in Rhodes-Kropf, Robinson, and Viswanathan (2005) to decompose market-to-book
ratios into misvaluation and growth option components, we find that issuing firms are both
overvalued and have greater growth opportunities relative to a comparison sample of non-issuing
firms. Issuing firms with greater growth opportunities invest more aggressively in capital
expenditures and R&D after the SEO, but do not experience lower post-issue abnormal stock
returns. In contrast, issuing firms with greater mispricing tend to decrease long-term debt and/or
increase cash holdings, and do earn lower post-issue abnormal returns. Our findings are more
consistent with behavioral explanations for post-issue stock price underperformance.
1

1. Introduction
It is well-documented that firms conducting seasoned equity offerings (SEOs) experience
significant stock price run-ups in the year prior to the offering and low stock returns over the
subsequent three to five years. Two alternative explanations of this pattern in returns have
appeared in the literature. The behavioral view is that the pre-issuance run-up reflects investor
overreaction to recent trends in performance, that managers are motivated to issue equity when
firms are overvalued, and that investors are slow to recognize and incorporate information
conveyed by SEO announcements.
1

More recently, real investment-based rational explanations have emerged. Carlson,
Fisher, and Giammarino (2006), using a real options approach, posits that the pre-issue run-up
reflects growth options moving into the money, that managers issue equity in order to invest in
these growth options, and that lower post-issue returns reflect a decrease in firm risk as risky
growth options are converted into less risky assets in place. Li, Livdan, and Zhang (2008), using
a Q-theoretic framework, argues that firms issue equity to finance investment projects induced
by low discount rates, and because of decreasing returns to scale, the increased investment leads
to lower marginal product of capital and thereby lower expected returns, which explains the post-
SEO underperformance. Both of the rational theories predict that firms increase investment after
SEOs and that there is a negative relation between investment level and post-issue stock returns.
2


1
We also include in the behavioral view the possibility that overvaluation at the time of the issue reflects
asymmetric information (as in Myers and Majluf (1984)) but that investors underreact to the signal conveyed by the
issue announcement.
2
There are other theories that address post-issue stock price underperformance. Titman, Wei, and Xie (2004) argues
that managers are empire-builders and destroy firm value by overinvestment. Eckbo, Masulis, and Norli (2000)
posits that SEO firms have lower risk levels due to lower leverage and higher stock liquidity after issuance. Brav,
Geczy, and Gompers (2000) argues that SEO underperformance may reflect a return pattern in publicly-traded small
and high market-to-book firms. Finally, Fama (1998) argues that underperformance may be caused by model
misspecification. We address issues raised by these alternative explanations in the paper.
2

In this paper, we provide evidence on these alternative explanations using a methodology
developed in Rhodes-Kropf, Robinson, and Viswanathan (2005, hereafter RKRV) that
decomposes pre-issue market-to-book (M/B) ratios into misvaluation and growth option
components. Previous research has documented that SEO firms have higher than average
market-to-book ratios. High M/B ratios can be viewed both as a sign of overvaluation, consistent
with the behavioral view, or as a sign of high growth options, consistent with the investment-
based rational theories. By decomposing issuing firm M/B ratios, we are able to provide sharper
tests of competing predictions as well as evidence on the possibility that both explanations
contribute to the observed pattern in performance.
The RKRV methodology uses an accounting multiples approach to break M/B ratios into
three components: firm-specific error, time-series sector error, and long-run value-to-book.
3

The firm-specific error component measures firm-specific deviations from valuations implied by
current sector (industry) accounting multiples, and is intended to capture the extent to which the
firm is misvalued relative to its contemporaneous industry peers. The time-series sector error
component measures valuation deviations when contemporaneous sector accounting multiples
differ from long-run sector multiples. This component is used as a measure of whether the
sector, or possibly the entire market, is overvalued. The long-run value-to-book component
measures the value implied by long-run sector accounting multiples relative to book value; it is
used as a proxy for growth opportunities.

3
We are not the first to apply the RKRV approach. See, for example, Hoberg and Phillips (2007) which uses the
method to measure industry-wide valuation relative to historical values and Campello and Graham (2007) which
uses a similar method to estimate fundamental Q using publicly observed accounting data. Elliot, Koeter-Kant and
Warr (2007) use a residual income approach to decompose the market-to-book ratio and Purnanandam and
Swaminathan (2004) measures mispricing as deviations from valuations based on industry peer multiples. We also
note that the decomposition method shares similarities with the Daniel and Titman (2006) accounting-based
approach to decomposing returns into tangible and intangible components.
3

Two aspects of the RKRV methodology affect our empirical testing strategy. First,
although estimating industry misvaluation is essential to the research question investigated by
RKRV, the time-series sector error component is less informative about the hypotheses we
investigate.
4
For this reason, and because of econometric issues that we discuss in the paper, our
tests of the behavioral view focus on potential misvaluation as reflected in the firm-specific error
component of M/B.
5
Second, there are potential model misspecification concerns that can make it
difficult to draw clear inferences from our findings. For example, a firm with high firm-specific
error may not be overvalued, but instead may simply have greater growth opportunities than
other firms in its industry. Thus, an important part of our empirical testing strategy aims at
providing evidence on the extent to which the firm-specific error and long-run value-to-book
components reflect misvaluation and growth options, respectively, and can thereby serve as
useful metrics in our analysis of post-issue stock price performance.
Our empirical analysis proceeds in three steps. First, for a sample of 4325 seasoned
equity offerings over the 1970 to 2004 time period, we show that all three components of M/B,
on average, are significantly larger for issuing firms than for a comparison sample of non-issuing
firms. This finding suggests that SEO decisions may be motivated by either high levels of
misvaluation, high levels of growth opportunities, or both.
Second, to provide evidence on the usefulness of the RKRV methodology as well as
provide insight on managerial motives for issuing equity, we examine the relation between the
use of issue proceeds and the pre-issue components of the market-to-book ratio. Assuming that
managers act in the interest of long-term shareholders, post-issue investment in real assets should

4
RKRV test theories of merger activity where industry misvaluation plays a central role.
5
Although industry misvaluation per se is not central to our research question, it can contribute to an individual
firms misvaluation. Thus, in addition to the tests based on firm-specific error, we also conduct tests based on total
error, defined as the sum of the firm-specific error and time-series sector error components. Although untabulated,
we discuss the total error results where relevant.
4

be positively related to the pre-issue level of growth options and uncorrelated with the level of
misvaluation. To the extent that the firm-specific error component of M/B reflects misvaluation,
there should be no relation between this error term and post-issue investment. Similarly, to the
extent that the long-run value-to-book component reflects the level of growth options, we should
expect to observe a positive relation between this growth option component and post-issue
investment.
To investigate post-issue investment, we follow the approach in Kim and Weisbach
(2006) and examine post-SEO changes (over horizons of 1 to 4 years) in seven accounting
variables that likely capture the use of issue proceeds: capital expenditures, R&D, total assets,
debt-reduction, cash, acquisitions and inventory.
6
We regress the changes in these accounting
variables on the components of the M/B ratio while controlling for the amount of primary capital
raised in the SEO, other sources of funds generated within the firm, firm size, and fixed effects
for year and industry. This analysis yields the following results:
Post-issue investment in capital expenditures and R&D is positively related to the
long-run value-to-book component, and unrelated to the firm-specific error
component of M/B.
Debt reduction is positively related to the firm-specific error component and
negatively related to the long-run value-to-book component of M/B.
Post-issue changes in cash positions are positively related to the firm-specific error
component, but unrelated to the long-run value-to-book component of M/B.

6
Using a sample of public equity offerings from 38 countries, Kim and Weisbach (2006) investigates the extent to
which market-timing and investment financing motivate equity offers. The study focuses on how the ultimate use of
capital raised varies with firm valuation and the extent to which this variation is consistent with the alternative
motives for equity offers. The study does not consider the decomposition of market-to-book ratios or address
alternative explanations for post-issue stock price performance.
5

These findings suggest that firms with high levels of growth options invest more in real assets,
whereas firms with high valuation errors are more likely to pay down debt and/or stockpile cash.
This evidence is consistent with results from earlier studies (Graham and Harvey (2001), Kim
and Weisbach (2006), Elliot, Koeter-Kant, and Warr (2007), and DellaVigna and Pollet (2008))
suggesting that equity issue decisions are motivated by both misvaluation and financing needs.
The evidence is also consistent with the interpretation of the firm-specific error and long-run
value-to-book components of M/B as measures of misvaluation and growth options, respectively,
and thus paves the way for our examination of the alternative explanations of low post-issue
stock price performance.
Our last set of tests focus on the relation between post-issue stock price performance and
pre-issue components of M/B. Behavioral theory predicts that post-issue stock returns should be
negatively correlated with the degree of overpricing at the time of issuance. In contrast, real
investment theory predicts a negative relation between post-issue stock returns and investment.
In these tests, we separate issuing firms into quartiles based on the misvaluation (firm-specific
error) and growth option (long-run value-to-book) components of M/B and then calculate long-
run post-issue abnormal returns for each quartile portfolio using calendar time factor regressions.
Our results are as follows:
We find a negative relation between the misvaluation component of M/B and
post-issue returns; issuing firms with high misvaluation have more negative post-
issue abnormal returns. Evidence that more overvalued firms have lower post-
issue abnormal returns is consistent with the behavioral explanation of low post-
issue returns.
6

In contrast, we find no relation between the growth option component of M/B and
post-issue returns; issuing firms with high levels of growth options do not have
lower post-issue abnormal returns than issuing firms with lower levels of growth
options. This evidence, taken in conjunction with our finding that issuing firms
with more growth options have higher levels of post-issue investment, is not
supportive of the real investment explanations of low post-issue stock returns.
Finally, we note that several previous studies of SEOs find that stock price
underperformance is primarily concentrated in small firms and argue that the post-issue
performance anomaly may be caused by asset-pricing model deficiencies when it comes to
valuing small firms.
7
In robustness checks, we separate our sample of issuing firms into two size
groups: the small subsample includes all issuing firms with pre-issuance market capitalizations
below the 20% size breakpoint of NYSE stocks; the big subsample includes all other issuing
firms. We find that the negative relation between post-issue returns and the misvaluation
component of M/B holds for both size subsamples. For example, big firms with high
misvaluation components exhibit significant post-issue stock price underperformance, while
small firms with low misvaluation components do not underperform. These results suggest
that the stock price performance around SEOs is not simply a small firm effect; i.e., firm level
mispricing appears to be a stronger indicator of post-issue underperformance.
The remainder of the paper is organized as follows. Section 2 describes the sample
selection procedure and the data. Section 3 describes our empirical methodology and Section 4
presents our findings. Section 5 concludes.



7
See Fama (1998), Brav, Geczy, and Gompers (2000), and Mitchell and Stafford (2000), among others.
7

2. Data
Our sample includes all firms, as identified from the SDC database, which conduct SEOs
over the period 1970 to 2004. Accounting information and stock price data are from Compustat
and CRSP, respectively. Following Rhodes-Kropf, Robinson, and Viswanathan (2005), we
merge data in the following way. To calculate and decompose M/B, we match Compustat
accounting data for fiscal year t with CRSP market value data measured three months after the
fiscal year-end. The pre-SEO M/B ratio and its components are calculated using this match of
Compustat and CRSP data if the issuance takes place four months after the fiscal year-end (i.e.,
one month after the CRSP market value data is measured). Otherwise, the SEO is matched with
data from fiscal year t-1.
To be included in the final sample, an issuing firm must have enough Compustat and
CRSP data to calculate the three components of the M/B ratio. We exclude firms that only issue
secondary shares as well as utility companies (SIC codes between 4910 and 4949), closed-end
funds (SIC codes between 6720 and 6739) and REITs (SIC code 6798). If a firm issues primary
shares more than once within a three-year period, then only the first issue is included. The final
sample has 4325 observations. Table 1 reports the number of SEOs in our final sample by year
over the period 1970 to 2004.

3. Market-to-book decomposition methodology
This section describes the market-to-book decomposition methodology. Section 3.1
provides an overview and our rationale for employing the decomposition method. Section 3.2
lays out the estimation procedures and presents summary statistics. Section 3.3 discusses two
8

concerns with the RKRV methodology (model misspecification and look-ahead bias) and how
these are addressed in our study.
3.1. Decomposing the market-to-book ratio
The rational and behavioral theories of stock price performance around SEOs offer
alternative explanations for high pre-issue market-to-book ratios. Behavioral theory suggests
that equity issues are more likely when firm market value, M, exceeds its true value, V. Real
investment theory suggests that equity issues are more likely after investment opportunities move
into the money resulting in a higher value-to-book ratio (V/B). This distinction underlies our
rationale for employing the RKRV methodology for decomposing M/B into misvaluation (M/V)
and growth option (V/B) components as follows:
(1) M/B M/V x V/B
which, in log form, can be written as
(2) ) ( ) ( b v v m b m +
where lower case letters indicate logarithms of the respective variables.
8
If markets know the
future growth opportunities, discount rates, and cash flows, then the term (m v) should be zero.
If markets make mistakes in estimating discounted future cash flows, or markets do not have
information that managers have, then (mv) will capture the misvaluation component of the
market-to-book ratio.

3.2. Estimating the components of the market-to-book ratio
Decomposing the market-to-book ratio, as depicted in Eq. (2), relies on determining an
estimate of firm value, v. For estimation purposes, for each firm i in industry j at time t, v can be

8
We adopt the same notation and our discussion below closely mirrors that in RKRV.
9

expressed as a linear function of observable firm-specific accounting information,
it
, and a
vector of corresponding accounting multiples, . The RKRV methodology employs both a
vector of contemporaneous time-t accounting multiples,
jt
, and a vector of long-run accounting
multiples,
j
, such that the market-to-book ratio for firm i at time t can be further decomposed
into three components as follows:
(3)
4 43 4 42 1 4 4 4 3 4 4 4 2 1 4 4 3 4 4 2 1
book to value run long
it j it
error tor
j it jt it
error specific firm
jt it it it it
b v v v v m b m

+ + = ) ; ( ) ; ( ) ; ( ) ; (
sec

The first term on the right hand side of Eq. (3), ) ; (
jt it it
v m , referred to as firm-
specific error, measures the difference between market value and fundamental value estimated
using firm-specific accounting data,
it
, and the contemporaneous sector accounting multiples,
jt
, and is intended to capture the extent to which the firm is misvalued relative to its
contemporaneous industry peers. The second term, ) ; ( ) ; (
j it jt it
v v , referred to as time-
series sector error, measures the difference in estimated fundamental value when
contemporaneous sector accounting multiples at time t,
jt
, differ from long-run sector
multiples,
j
, and is intended to capture the extent to which the industry (or, possibly, the entire
market) may be misvalued at time t. The third term, referred to as long-run value-to-book,
measures the difference between firm value (implied by the vector of long-run sector multiples)
and book value. This measure is interpreted as the investment opportunity component of the
market-to-book ratio.
RKRV use three different models to estimate ) ; (
jt it
v and ) ; (
j it
v . The models differ
only with respect to the accounting items that are included in the accounting information vector,
it
. To save space, we focus on RKRVs third model, which includes book value (b), net
10

income (NI) and market leverage ratio (LEV) in the accounting information vector.
9
Expressing
market value as a simple linear model of these variables yields:
(4)
it it jt it jt it jt it jt jt it
LEV NI I NI b m + + + + + =
+
<
+
4 ) 0 ( 3 2 1 0
) ln( ) ln(
where, because net income can sometimes be negative, it is expressed as an absolute value (NI)
+

along with a dummy variable,
) 0 (<
I , to indicate when net income is negative.
To calculate the contemporaneous accounting multiples,
jt
, each year we group all
CRSP/Compustat firms according to the 12 Fama-French industry classifications and run annual,
cross-sectional regressions (of Eq. 4) for each industry and generate estimated industry
accounting multiples for each year t,
jt
.
10
The estimated value of ) ; (
jt it
v is the fitted value
from regression Eq. (4):
(5)
it jt it jt it jt it jt jt
jt jt jt jt jt it it it
LEV NI I NI b
LEV NI b v
4 ) 0 ( 3 2 1 0
4 3 2 1 0
) ln( ) ln(
) , , , , ; , , (


+ + + + =
+
<
+

To calculate the long-run sector multiples,
j
, we average, over time, the
jt
s from the
annual regressions:

=
t
jt j
T / 1 . The estimate of ) ; (
j it
v is then the fitted value of Eq.
(4) using the
j
s:
(6)
it j it j it j it j j
j j j j j it it it
LEV NI I NI b
LEV NI b v
4 ) 0 ( 3 2 1 0
4 3 2 1 0
) ln( ) ln(
) , , , , ; , , (


+ + + + =

<
+

Table 2 presents the time-series averages (over fiscal years 1969 to 2003) of the annual
regression coefficients for Eq. (4) for the 12 Fama-French industries. (As just discussed, these

9
The first model includes only book value; the second model includes book value and net income. Our results are
robust to using either of these models. See RKRV for a discussion of the rationale behind each of the individual
models.
10
We use market capitalization (price * shares outstanding) as our measure of the market value of equity.
Accounting variables are measured as follows: book value (data item 60), net income (data item 172), market
leverage ratio (1-market equity/market value), where market value is measured as CRSP market equity plus
Compustat book assets (data item 6) minus deferred taxes (data item 74) minus book equity (data item 60).
11

time-series averages serve as the estimates of the long-run sector accounting multiples.) The
results are similar to those reported in Table 4 of RKRV. The table reports that the average
adjusted-R
2
for these regressions ranges from 82% to 92%, which shows that within an industry,
the three accounting variables explain a large majority of the cross-sectional variation in firm
market values in a given year.
11


3.3 Look-ahead bias and model misspecification
As RKRV recognize, the calculation of
j
, the time series average of the yearly sector
multiples, uses forward looking information that is not available to the market at time t. Thus,
this information can not possibly be incorporated in prices at the time of the SEO. RKRV argue
that the estimate of long-run value, ) ; (
j it
v , could reflect information possessed by firm
managers, but unknown to the market at time t. While the information asymmetry interpretation
fits within our framework, the calculation of
j
may be problematic for our post-issue
performance tests as the estimation and testing periods overlap. (This is not a problem, however,
for the post-issue performance tests based on the firm-specific error component of M/B as the
estimation period occurs prior to the testing period.) Thus, as a check on the robustness of our
findings, we also perform and discuss the results of tests where we modify the RKRV
methodology and calculate
j
as the time series average of the yearly sector multiples over the
five years prior to the SEO.
12


11
As suggested in Petersen (2008), Fama-Macbeth standard errors (as reported in Table 2) can be downward biased
due to unobserved firm effects. Thus, we also estimated clustered standard errors using OLS and found qualitatively
similar results. Given that the focus of the RKRV methodology is on the point estimates of the regression
coefficients, this alternative method of estimating standard errors does not affect the conclusions of our study.
12
We note that the modified approach comes at a cost in that it discards valuable information if managers truly are
motivated by asymmetric information when making SEO decisions. We also note that estimates of the time-series
sector error component are highly sensitive to estimation periods used to calculate
j
.
12

A critical concern with the RKRV methodology is that, in addition to misvaluation, the
error components in Eq. 3 will also reflect any errors due to model misspecification. For
example, a firm with high firm-specific error may not be overvalued, but instead may simply
have greater growth options and/or a lower discount rate than other firms in its industry.
Although we can not rule out model misspecification, we provide evidence (in Section 4.2)
suggesting that the high levels of firm-specific error we document for our sample of SEO firms
reflect an important misvaluation component.

4. Empirical findings
This section presents results from a battery of tests aimed at providing evidence on the
rational and behavioral theories of the pattern in stock price performance around SEOs. We
proceed in three steps. In section 4.1, we present summary information on pre-issue market-to-
book ratios and the decomposition into the error and growth option components for our sample
of SEO firms and for a comparison sample of non-issuing firms. In section 4.2, we present
evidence on the use of proceeds by examining the relation between pre-issue M/B components
and post-issue investment decisions. Our objective here is to provide insight regarding the error
component of the M/B ratio, and to further examine how investment funding needs and market-
timing motivate equity issuance decisions. In section 4.3, we provide evidence on the relation
between the pre-issue misvaluation and growth option components of M/B and the long-run post-
issue stock price performance of the issuing firms.



13

4.1. Market-to-book ratios of issuing firms: Investment opportunities vs. misvaluation
Panel A of Table 3 reports summary information on the pre-issue M/B ratio and the three
components of M/B for our sample of SEO firms and for a comparison sample of all non-issuing
CRSP/Compustat firms. The table shows that the average (log) M/B ratio for our sample of
issuing firms is 0.95, while the average ratio for all CRSP/Compustat firms is only 0.42. This
evidence is consistent with prior findings that SEO firms have relatively high pre-issue M/B
ratios; high pre-issue market-to-book ratios are also consistent with earlier evidence that issuing
firms experience significant stock price run-ups prior to issuance.
With respect to the components of M/B, Panel A shows that the average firm-specific
error, time-series sector error and long-run value-to-book ratio for the sample of issuing firms is
0.27, 0.06, and 0.62, respectively; each is significantly different from zero and significantly
larger than the respective averages for all non-issuing firms in the CRSP/Compustat universe.
We also note that the error components constitute a substantially larger fraction of issuing firm
market-to-book ratios (35%) as compared to the comparison sample of non-issuers (2%).
13

To provide additional information on the relative magnitudes of the components of M/B,
Panel B presents the distribution of the sample of SEO firms sorted across firm-specific error
and long-run value-to-book quartiles, where quartile breakpoints are formed using all
CRSP/Compustat firms for each fiscal year. With respect to firm-specific error, 39% of the
issuing firms are in the highest CRSP/Compustat quartile, while only 14% are in the lowest

13
By design, the average firm-specific error of all CRSP/Compustat firms is zero since it is measured as the
regression residual,
it
, from Eq. (4). This follows since we estimate ) ; (
jt it
v as the fitted value from the annual
cross-sectional regression for each industry. Thus, the firm-specific error, ) ; (
jt it it
v m , is simply the
regression residual.
14

quartile. For long-run value-to-book, 36% of the SEO firms are from the highest quartile with
only 19% coming from the lowest.
14

In summary, the evidence in this subsection is consistent with the possibility that both
market-timing and capital budgeting needs influence the SEO decision. The tendency for issuing
firms to have high pre-issue long-run value-to-book ratios suggests that that these firms issue to
satisfy investment needs. The tendency for issuing firms to have market values in excess of
fundamental values implied by industry accounting multiples can be interpreted as either
misvaluation, model error, or possibly both. We present evidence in the next two sections
suggesting that the large firm-specific error components we observe for our sample of issuing
firms reflect overvaluation.

4.2. Use of issue proceeds: Investment versus debt-reduction
The previous literature (Loughran and Ritter (1997)) shows that issuing firms, on
average, have high levels of investment following SEOs. However, we should expect to observe
differences in post-issue investment behavior, depending upon the motivation for undertaking an
SEO. More specifically, assuming managers act in the best interest of long-term shareholders,
we should expect to see more debt reduction and/or increases in cash holdings when SEOs are
motivated by stock price overvaluation and more investment when SEOs are motivated by
capital budgeting needs. In this section, we investigate the use of issue proceeds by examining
the relation between post-issue investment and pre-issue levels of the error and growth option

14
Note that 11% of our SEO firms are in firm-specific error and long-run value-to-book quartiles 1 and 2, which
suggests that they are not overvalued and have low investment opportunities. Issuance by these firms suggests that
either managers make mistakes when assessing true firm value and growth options, that managers are exhibiting
empire-building behavior, and/or that our three M/B components are imperfect measures of misvaluation and
investment opportunities. We also note that we obtain similar results when the analysis is based on total error (the
sum of firm-specific error and time-series sector error.)
15

components of M/B. A primary goal here is to provide evidence on the extent to which the firm-
specific error component of M/B reflects misvaluation and can thereby serve as a useful metric
in our analysis of long-run post-issue stock returns.
To provide evidence on post-issue investment, we follow the approach in Kim and
Weisbach (2006) and track seven accounting variables that potentially capture the use of issue
proceeds. We examine post-issue changes in R&D, capital expenditures, acquisitions, inventory,
total assets, cash and reduction of long-term debt for up to four years following the SEO. To
control for firm size, we scale all accounting variables by book assets in the fiscal year prior to
the SEO. For the income statement and cash flow statement items (R&D, capital expenditures,
acquisitions and reduction in long-term debt as measured by Compustat data items 46, 128, 129
and 114 respectively), we calculate the accumulation in each variable since the SEO, scaled by
book assets prior to the SEO:
0
1
/ Asset V
t
i
i
=
, for t=1, to 4, where V is the accounting variable
being measured and year 0 is the fiscal year-end just prior to the year of the SEO. For the
balance sheet variables (inventory, cash and total assets as measured by Compustat data items 3,
1, and 6 respectively), we measure the cumulative change in each variable since the SEO:
0 0
/ ) ( Asset V V
t
, for t = 1 to 4.

4.2.1. Univariate analysis of post-issue investments across components of market-to-book
We start with a univariate analysis of how post-issue investment varies across the pre-
issue components of the market-to-book ratio. Panels A and B of Table 4 report the mean
normalized increase for each accounting variable for quartiles based on the firm-specific error
and long-run value-to-book components, respectively.
16

Although a univariate analysis is necessarily preliminary, several results point to the
interpretation of the firm-specific error component of M/B as a useful measure of misvaluation.
First, comparing across panels, post-issue R&D and capital expenditures are both strongly
related to long-run value-to-book, but unrelated to firm-specific error. As reported in Panel B,
R&D and capital expenditures both increase monotonically as the long-run value-to-book ratio
increases; differences between quartiles 4 and 1 are highly significant at all horizons for both
variables. In sharp contrast, we do not observe such a relation when R&D and capital
expenditures are measured across quartiles of the firm-specific error component, as reported in
Panel A. This finding is more consistent with the interpretation of firm-specific error as a
measure of misvaluation as opposed to a measure of firm-specific deviation from industry
average growth and discount rates. That is, we should not expect to observe greater post-issue
investment as the degree of overvaluation increases.
Second, and also consistent with the view that the error component reflects misvaluation,
we find that firms with high firm-specific error are more likely to spend issue proceeds on debt-
reduction. At both the one- and two-year horizons, long-term debt reduction increases
monotonically as firm-specific error increases; differences between quartiles 4 and 1 are highly
significant in both cases. In contrast, we find no relation between debt-reduction and the growth
option component of M/B.
In summary, the univariate analysis suggests that both misvaluation and the need to fund
positive NPV projects motivate firms to issue equity. Firms with high investment opportunities
appear to issue to finance R&D and capital expenditures, while firms with high valuation errors
appear to use relatively cheaper equity to substitute for debt. We note that acquisitions, cash
levels, inventories and total assets are all positively related to both components of the M/B ratio.
17

While the univariate analysis presented here is suggestive, there are limitations. Post-
issue investment may be influenced by factors that are not reflected in the M/B components. The
level of issue proceeds, the amount of other sources of funds generated within the firm, firm size,
industry, and year effects may all distort the univariate findings. In the next subsection, we
control for these factors in a multivariate setting.

4.2.2. Multivariate analysis of the use of proceeds across components of market-to-book
We use a regression approach similar to Kim and Weisbach (2006) to investigate the
relation between components of the pre-issue M/B ratio and post-issue use of proceeds. We
regress changes in the seven accounting variables (measured over one-, two-, three- and four-
year post-issue horizons) on the growth option and error components of M/B while controlling
for primary capital raised in the SEO, other sources of funds generated within the firm, firm size,
and fixed effects for year and industry.
15
To avoid the impact of outliers, we take the log of the
scaled accounting variables plus one.
For each accounting variable, we run the following regression for each post-issue
horizon:
(7)

= =
+ + +
(

+
|
|

\
|
+
(

+
|
|

\
|
+ + + =
11
1 j
j
2001
1970 i
i 0 6
0
t
5
0
4 3 2 1
mmy IndustryDu YrDummy ) Asset ln(Total
1
Asset Total
OtherCap
ln 1
Asset Total
PrimaryCap
ln Sector LongRun Firm Y

where
[ ] 1 ) Asset )/Total V ((V ln Y
0 0 t
+ = for V = Cash, inventory, total assets and

15
In an earlier version of their paper, Kim and Weisbach (2006) include the proceeds from secondary shares sold in
conjunction with the SEO as a control variable. In results that are not reported here, we re-run the regressions
controlling for proceeds from secondary shares and find similar results. We note that in more than half of our
sample secondary shares are not issued.
18

(

+ =

=
1 ) Asset /Total V ( ln Y
0
t
1 i
i
for V = R&D, capital expenditure, long-term debt reduction
and acquisitions, for t=1 to 4.
Firm, Sector, and LongRun refer to the three components of the pre-issue M/B ratio.
OtherCap
t
= ln [(

=
t
i 1
(total sources of funds
t
Primary Capital) / Total Asset
0
) + 1] where total
sources of funds include internally generated cash from continuing operations, investment and
financing activities.
16

Table 5 presents the regression estimates of Eq. (7). Several results are of interest. First,
we find evidence that post-issue investment is positively related to the pre-issue level of growth
options. More specifically, for the capital expenditure and R&D regressions, the coefficients on
LongRun are positive and significant at all horizons. This evidence is consistent with the
predictions of real investment theory that equity issues are timed after an increase in the net
present value of investment opportunities.
17

Second, post-issue investment is unrelated to the firm-specific error component of M/B.
The coefficients on Firm in the capital expenditure and R&D regressions are generally
insignificant (we do observe one significant coefficient in the R&D regression but the sign is
negative.) This evidence is consistent with the interpretation of the firm-specific error
component as a measure of misvaluation. The alternative interpretation, that the firm-specific
error component reflects firm-specific deviations from industry average growth and discount
rates, is not supported. The alternative interpretation is also not supported by a test of the

16
We use Compustat data item 112 as our measure of total sources of funds. If missing, we calculate total sources of
funds as the sum of funds from operations (data item 110), sale of property, plant and equipment (data item 107),
long-term debt issuances (data item 111), and sale of common and preferred stock (data item 108).
17
Although not the focus of our paper, we note that this pattern is not suggestive of empire-building of the type
discussed in Titman, Wei and Xie (2004), i.e., we find that a firms investment level is positively correlated with its
long-run value-to-book ratio, a proxy for positive NPV investment opportunities.
19

equality of coefficients on Firm and LongRun; we reject at the 0.00 level that these coefficients
are equal.
Third, post-issue debt-reduction is positively related to the firm-specific error component
and negatively related to long-run value-to-book component of M/B. This finding suggests that
firms with greater investment opportunities invest more, whereas firms with higher valuation
errors are more likely to pay down debt. We also find that post-issue changes in cash positions
are positively related to firm-specific error, but unrelated to long-run value-to-book in three out
of four horizons. This finding bolsters our conclusion that the firm-specific error component of
M/B is a reasonable measure of misvaluation.
18

For a sense of the economic significance of our findings, we note that a one standard
deviation increase in long-run value-to-book results in a $13.1 million increase in R&D
spending, and a $4.9 million increase in capital expenditures over the four years following the
SEO.
19
In contrast, this increase in long-run value-to-book results in $8.2 million less spending
on long-term debt reduction. Increasing firm-specific error by one standard deviation has a
minimal impact on R&D and capital expenditures, but results in a $3.6 million increase in long-
term debt reduction over the four years following the equity offering.

4.3. Long-run post-issue stock price performance across components of market-to-book
It has been widely documented that SEO firms underperform various benchmarks by
about 3.5% per year in the five years subsequent to issuance (Ritter (2003)). The behavioral

18
To eliminate look-ahead bias (as discussed in section 3.3), we re-estimate the long-run sector multiples using only
past five years of annual industry accounting multiples instead of using the entire time-series. The regression results
using this modified methodology (reported in Appendix Table 1) are similar to those reported in Table 5.
19
We use the median SEO firms book assets prior to issuance, $132.6 million, as Total Asset
0
. The standard
deviations of SEO firms firm-specific error and long-run value-to-book components are 0.706 and 0.741,
respectively.
20

explanation for post-issue underperformance is that the market is slow to recognize that SEO
firms are overvalued. Alternatively, Carlson, Fisher, and Giammarino (2006) argues that low
post-issue returns reflect a decrease in firm risk due to the conversion of risky growth options
into less risky assets in place. Li, Livdan, and Zhang (2008) argues that low post-issue returns
reflect that SEO firms have low required rates of return due to exogenous factors. Both of the
real investment theories predict that post-issue returns are negatively correlated with the level of
post-issue investment. Thus, the behavioral theories predict that firms that are more overvalued
should have lower post-issue abnormal returns, while the real investment theories predict that
firms with greater investment opportunities should have lower post-issue abnormal returns, as
they are the firms that invest most after issuance. In this section, we test these two hypotheses by
examining the relation between post-issue stock returns and pre-issue components of the market-
to-book ratio. Specifically, we separate issuing firms into quartiles based on firm-specific error
and long-run value-to-book, respectively, calculate abnormal returns for each quartile portfolio
and compare returns across quartiles.
Following Mitchell and Stafford (2000) and Brav, Geczy, and Gompers (2000), among
others, we use calendar-time factor regressions to measure long-run stock price performance.
For each firm-specific error and long-run value-to-book quartile, for every month from January
1973 to December 2003, we form equal-weighted (EW) and value-weighted (VW) portfolios of
firms that issued seasoned equity in the past 3 years and belong to that specific quartile.
20
The
dependent variable is the portfolio excess return of the quartile portfolio over the one-month T-
bill rate. We use the Fama and French (1993) three-factor model and the Carhart (1997) four-

20
In unreported tests, we also examine 5-year post-issue abnormal stock price performance and find qualitatively
similar, albeit weaker, results.
21

factor model, and measure portfolio abnormal performance using the intercept from the factor
regressions.
Table 6 presents the post-issue abnormal stock price performance for quartiles ranked by
firm-specific error (Panel A) and long-run value-to-book (Panel B). For ease of exposition, we
focus on the results obtained using the Fama-French 3-factor model. The results using the
Carhart 4-factor model are qualitatively similar although weaker on a few dimensions; we
discuss these results where relevant.
Panel A of Table 6 shows evidence of a negative relation between pre-issue firm-specific
error and post-issue abnormal returns that is consistent with the behavioral view. Specifically,
we observe that as firm-specific error increases, the quartile portfolio abnormal returns decrease
monotonically. There is also a dramatic difference between returns to firms in the highest versus
lowest firm-specific error quartiles: issuing firms in the lowest firm-specific error quartile have
average abnormal returns that are not significantly different from zero: -0.11% per month (-3.9%
after 3 years) whereas issuing firms in the highest firm-specific error quartile have significantly
negative average post-issue abnormal returns: -0.54% per month (-19.4% after 3 years). The
pattern is generally the same using the Carhart 4-factor model. The alpha for the lowest firm-
specific quartile is positive, but it is significantly negative for the highest firm-specific error
quartile. The value-weighted portfolio results are generally consistent with misvaluation, but not
as strong as our findings using equal-weighted portfolios.
21,22


21
Loughran and Ritter (1999) and Brav, Geczy, and Gompers (2000), among others, have shown that equal-weighted
and value-weighted portfolios may generate different abnormal returns and have debated the pros and cons of each
method. Our goal here is to investigate whether valuation errors influence the issuance decision and future stock
returns, not to quantify the wealth impact on firms after issuance. Therefore, we believe equal-weighting may be
more appropriate.
22
We find stronger (weaker) results when we look at post-issue abnormal returns broken out by total error when
time-series sector error is calculated using the full time-series (past only data.)
22

Panel B of Table 6 presents average abnormal returns for long-run value-to-book quartile
portfolios. We have shown in Tables 4 and 5 that issuing firms in the highest long-run value-to-
book quartile invest more aggressively in R&D and have greater capital expenditures after
issuance than firms in the lowest quartile, but here we see no evidence that issuing firms in the
highest quartile have lower post-issue returns than firms in the lowest quartile. In fact, the
average post-issue return to firms in the highest long-run book-to-value quartile is higher than
that of firms in the lowest quartile for both the equal- and value-weighted results.
23
This
evidence does not support the real-investment explanations of low post-issue stock price
performance put forward by Li, Livdan, and Zhang (2008) and Carlson, Fisher, and Giammarino
(2006).

4.3.1. Robustness checks
Previous literature has shown that post-issue abnormal performance is concentrated in
small firms, and argues that the SEO anomaly results from asset-pricing model deficiencies in
pricing the equity of small firms.
24
We investigate the extent to which firm size affects the
pattern in post-issue abnormal performance that we document. This investigation is motivated,
in part, by evidence in Table 6 (the declining sort on slopes on SMB) indicating that our high
mispricing firms tend to be relatively larger firms.
To investigate, we separate our sample of issuing firms into two sub-samples based on
firm size: the small subsample includes all issuing firms with a market capitalization (before
issuance) at or below the 20% size breakpoint of NYSE stocks; all other firm are in the big

23
To exclude look-ahead bias, we re-run the test where the long-run value-to-book component is estimated using
past only data. As shown in Appendix Table 2, results do not change.
24
See Fama (1998), Mitchell and Stafford (2000), and Brav, Geczy, and Gompers (2000), among others.
23

subsample.
25
Within each size sub-sample, we again sort the issuing firms into quartiles based on
firm-specific error and examine whether the negative relation between the pre-issue error
component and post-issue abnormal returns still holds within each size group. Although not
reported in a table, we note that, consistent with previous studies, equity issuance in our sample
is concentrated in small firms: 53.6% of our sample firms (2,319 SEO firms) have a market
capitalization smaller than the 20% NYSE breakpoint.
Table 7 presents the post-issue abnormal stock price performance for the firm-specific
error quartiles that are formed within each size subsample. Panel A reports results for the Fama-
French 3-factor model; Panel B reports results using the Carhart 4-factor model. We note first
that, consistent with previous studies, we find that smaller issuing firms tend to have greater
post-issue underperformance; the small SEO firms generally have lower post-issue abnormal
returns compared with their larger counterparts within each firm-specific error quartile.
However, within each size subsample, firms with the lowest firm-specific error do not, on
average, have significant negative abnormal returns, while firms with high firm-specific error
significantly underperform (with the exception of the equal-weighted Carhart results for larger
firms). This evidence suggests that firm level mispricing is a stronger predictor of future
underperformance compared with size, i.e., the SEO anomaly is not limited to small firms.
We also perform a robustness check using an alternative factor pricing model. Lyandres,
Sun, and Zhang (2008) show that adding an investment factor, that is long low investment stocks
and short high investment stocks, can explain a significant fraction of the post-issue
underperformance of SEO firms. They interpret their evidence as supportive of the investment-

25
The size breakpoints are from Kenneth Frenchs website:
http://mba.tuck.dartmouth.edu/pages/faculty/ken.french/data_library.html.
24

based explanation of low post-issue stock price performance.
26
In untabulated data, we find that
adding the investment factor reduces the magnitude of post-issue underperformance.
27
However,
the decreasing trend of abnormal returns across firm-specific error quartiles remains qualitatively
unchanged. Issuing firms in the lowest error component quartiles have positive abnormal returns
in most cases, while firms in the highest error component quartiles generally have significant
negative abnormal returns.

4.3.2. Summary and caveats
Figure 1 summarizes the central findings of this section by showing the relation between
post-issue abnormal returns and the pre-issue components of M/B. For illustrative purposes, we
focus on the equal-weighted results using the Carhart four-factor model. The figure shows the
negative relation between post-issue abnormal returns and the pre-issue error component
contrasted against the lack of a relation between post-issue returns and the pre-issue growth
option component.
We recognize several caveats with respect to the interpretation of the findings in this
section. First, evidence that firms in the high long-run value-to-book quartile invest aggressively
post-issue in R&D suggests that in addition to converting growth options to assets in place,
issuing firms may also contemporaneously be adding growth options. Thus, R&D investment
may mitigate post-issue risk-reduction of the type suggested by Carlson, Fisher, and Giammarino
(2006); this may explain why we do not observe lower post-issue returns for the high long-run

26
Lyandres, Sun, and Zhang (2008) also show that the investment factor is sufficient to explain the portfolio returns
compared with the macroeconomic factor model proposed by Eckbo, Masulis and Norli (2000).
27
We thank Evgeny Lyandres for providing us with the investment factor.
25

value-to-book issuers.
28
A second caveat is that other factors may also contribute to the low
post-issue returns. This is suggested in particular by the fact that firms in the lowest error
quartiles (Panel A of Table 6), which might be considered to be undervalued, do not have
significant positive post-issue abnormal returns. While this may be due to a selection bias in that
managers are reluctant to issue when the equity is undervalued, it may also reflect decreased firm
leverage ratios and increased stock liquidity after issuance as suggested in Eckbo, Masulis and
Norli (2000). Thus, while we find evidence that misvaluation prior to issuance contributes to the
long-term underperformance of SEO stocks, we cannot rule out the possibility that other factors
also play a role. Finally, we recognize the possibility that our measure of firm-specific error may
be correlated with risk factors that are not captured by the Fama-French and Carhart models. In
that case, our study might help shed light on these factors.

5. Conclusion
In this paper, we examine the extent to which market-timing and/or capital budgeting
motivate equity issuance decisions and contribute to low post-issue stock returns. We have three
main findings. First, using the Rhodes-Kropf, Robinson, and Viswanathan (2005) methodology
to decompose pre-issue market-to-book ratios into misvaluation and growth options components,
we find that issuing firms have greater mispricing and greater growth options relative to the
overall market. This finding is consistent with both the behavioral and rational explanations of
high pre-issue market-to-book ratios and suggests that both firm-level overvaluation and
financing needs affect managerial decisions to issue equity.

28
Consistent with this possibility, Ritter (2003) reports that post-issuance SEO firms are highly risky, with an
average summed beta of 1.5 over the three years following issuance. Also consistent is evidence in Denis and
Kadlec (1994) showing no change in systematic risk following equity offerings.
26

Second, we examine the relation between the use of issue proceeds and the pre-issue
components of the market-to-book ratio and find that issuing firms with larger error components
tend to pay down debt and/or stockpile cash, while firms with greater growth option components
invest more in R&D and capital expenditures. This evidence suggests that the error and long-run
value to book components of the market-to-book ratio capture different characteristics
(misvaluation vs. growth options) of the issuing firms. The differential post-issue investment
also bolsters our conclusion that SEOs are motivated by both misvaluation and/or financing
needs.
Third, consistent with behavioral explanations for low post-issue stock returns, we find
that 3-year post-issue abnormal stock returns are more negative for firms that are more
overvalued as measured by the pre-issue error component of market-to-book. In contrast, we
find no relation between post-issue abnormal returns and the pre-issue growth option component
of market-to-book. This evidence, taken together with our finding that issuing firms with greater
growth option components tend to invest more post-issue, is not supportive of the real
investment explanations of low post-issue returns.
Finally, although our findings identify firm-level misvaluation as an important factor
contributing to low post-issue returns, we cannot rule out that other factors may also be relevant.
We leave continued investigation of these factors to future research.
27

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29
Table 1
Number of seasoned equity offerings

This table reports the number of SEOs by year. All SEO information is from the SDC database for the years 1970 to
2004. To be included in the final sample, a SEO firm must have enough Compustat and CRSP data to decompose
its market-to-book ratio as described in Section 3.2. We exclude firms that only issue secondary shares, utility
companies with SIC codes between 4910 and 4949, closed-end funds (SIC codes between 6720 and 6739) and
REITs (SIC code 6798). If a firm issues primary shares more than once within a three-year period, then only the
first issue is included.

Year SEO Percent (%)
1970 15 0.3
1971 41 0.9
1972 42 1.0
1973 9 0.2
1974 12 0.3
1975 24 0.6
1976 44 1.0
1977 25 0.6
1978 47 1.1
1979 36 0.8
1980 118 2.7
1981 112 2.6
1982 75 1.7
1983 292 6.8
1984 49 1.1
1985 131 3.0
1986 141 3.3
1987 118 2.7
1988 40 0.9
1989 88 2.0
1990 71 1.6
1991 214 4.9
1992 173 4.0
1993 237 5.5
1994 156 3.6
1995 229 5.3
1996 285 6.6
1997 250 5.8
1998 170 3.9
1999 178 4.1
2000 173 4.0
2001 167 3.9
2002 166 3.8
2003 196 4.5
2004 201 4.6
Total 4325 100

30
Table 2
Time-series average conditional regression multiples

This table reports the time-series average multiples from regression Eq. (4) in Section 3. The dependent variable is the natural log of market value (M). The
independent variables are the natural log of book value of equity (B), the natural log of the absolute value of net income (NI
+
), a dummy variable indicating when
the net income is negative (I
(<0)
) and leverage (LEV). The regression is estimated cross-sectionally at the industry-year level for each of the Fama-French 12
industries from fiscal year 1969 to 2003. The subscripts i, j and t refer to firm, industry and year, respectively. ) (
k t
E is the time-series average regression
multiple for the kth accounting variable. We also report the Fama-Macbeth standard errors below the average estimated multiples. The reported R
2
is the average
adjusted-R
2
for each industry.


Fama-French industry classification

Parameter
Consumer
nondurables
Consumer
durables Manufacturing Energy Chemicals
Computer,
Software,
etc
Telephone
& TV Utilities Wholesale Medical Finance Other
it it jt it jt it jt it jt jt it
LEV NI I NI b m + + + + + =
+
<
+
4 ) 0 ( 3 2 1 0
) ln( ) ln(

2.26 2.43 2.06 2.10 2.52 2.32 2.59 2.32 2.18 2.51 1.99 2.22
0.07 0.11 0.07 0.08 0.06 0.06 0.15 0.14 0.06 0.05 0.05 0.06
) (
1

t
E
0.62 0.58 0.66 0.68 0.59 0.61 0.62 0.79 0.66 0.60 0.58 0.62
0.01 0.02 0.01 0.02 0.03 0.02 0.02 0.03 0.01 0.02 0.01 0.01

0.31 0.30 0.28 0.25 B0.36 0.34 0.29 0.18 0.29 0.34 0.39 0.31
0.01 0.02 0.01 0.01 0.02 0.01 0.02 0.03 0.01 0.02 0.01 0.01
) (
3

t
E
0.00 -0.02 -0.04 -0.04 -0.01 -0.07 0.04 -0.15 -0.06 -0.10 -0.23 -0.06
0.02 0.02 0.01 0.03 0.03 0.01 0.10 0.11 0.01 0.02 0.02 0.01
) (
4

t
E
-2.66 -2.53 -2.30 -2.25 -3.00 -2.64 -2.38 -2.68 -2.28 -2.68 -1.12 -2.05
0.08 0.11 0.09 0.13 0.10 0.10 0.18 0.24 0.06 0.09 0.04 0.07

N 35 35 35 35 35 35 35 35 35 35 35 35
2
R 0.85 0.83 0.87 0.87 0.86 0.85 0.87 0.92 0.87 0.88 0.85 0.85



) (
0

t
E
) (
2

t
E
31
Table 3
Firm-level decomposition of market-to-book ratios

Panel A reports the decomposition of market-to-book ratios at the firm-level for our sample of SEO firms and for a comparison sample of all non-SEO
CRSP/Compustat firms over the period 1970 to 2004. The column t(diff) reports the t-statistic for the test that SEO firms have the same average market-to-book
ratio (or component) as the non-SEO CRSP/Compustat comparison firms. Panel B shows the distribution of the SEO sample across firm-specific error and long-
run value-to-book quartiles. We report the percentage of SEO firms that belong to each quartile. The quartile breakpoints for firm-specific error and long-run
value to book are generated from the universe of all (SEO plus non-SEO) CRSP/Compustat firms for each fiscal year.



Panel A: Decomposing market-to-book at the firm-level
M/B component SEO firms Non-SEO firms
Mean N Mean N t(diff)
it it
b m
0.95 4,325 0.42 159,927 -32.35


) ; (
jt it it
v m Firm-specific 0.27 4,325 -0.01 159,475 -24.89

) ; ( ) ; (
j it jt it
v v Sector 0.06 4,325 0.02 159,475 -10.06
it j it
b v ) ; (
Long run value-
to-book 0.62 4,325 0.41 159,475 -18.18





Panel B: Distribution of SEO sample across firm-specific error and value-to-book quartiles
Long-run value-to-book
Firm-specific error Low Quartile 2 Quartile 3 High Total
Low 2% 2% 4% 7% 14%
Quartile 2 3% 4% 6% 8% 21%
Quartile 3 5% 7% 7% 8% 27%
High 10% 7% 8% 13% 39%
Total 19% 20% 25% 36% 100%
32
Table 4
Average post-issue increases in assets and expenditures by M/B components

Panels A and B of this table report average post-issue increases in assets and expenditures by firm-specific error and
long-run value-to-book quartiles, respectively. Increases in expenditures (R&D, capital expenditure, long-term debt
reduction and acquisition) are calculated as
0
t
1 i
i
/Asset V

=
. Increases in assets (cash, inventory and total assets) are
calculated as
0
1
0
/ ) ( Asset V V
t
i
i
=

, for t=1 to 4, where V is the variable being measured, year 0 is the fiscal year-end
just prior to the SEO issuance day, and t is number of years after year 0. The columns Diff and t(diff) report the
difference and statistical significance, respectively in mean expenditure between quartiles 4 and 1. The means
reported here are winsorized at 0.5% for each tail to remove influential outliers.

Panel A: Firm-specific error
Firm-specific error quartiles
V t Low 2 3 High Diff (4-1) t(diff)
R&D 1 0.17 0.15 0.13 0.14 -0.03 -1.79
2 0.37 0.38 0.31 0.34 -0.03 -0.78
3 0.60 0.64 0.53 0.55 -0.05 -0.52
4 0.85 0.95 0.74 0.84 -0.01 0.03

CAPEX 1 0.14 0.13 0.13 0.16 0.02 0.74
2 0.33 0.30 0.31 0.39 0.07 1.61
3 0.53 0.51 0.51 0.64 0.11 0.53
4 0.75 0.74 0.71 0.91 0.16 1.06

LT Debt 1 0.08 0.13 0.14 0.17 0.09 6.53
Reduction 2 0.19 0.27 0.27 0.35 0.16 4.02
3 0.35 0.47 0.47 0.52 0.17 1.06
4 0.54 0.76 0.65 0.80 0.27 1.48

Acquisition 1 0.06 0.07 0.07 0.09 0.03 1.78
2 0.12 0.17 0.15 0.19 0.07 2.15
3 0.17 0.29 0.24 0.29 0.12 2.13
4 0.20 0.43 0.35 0.38 0.17 3.83

Cash 1 0.16 0.26 0.24 0.36 0.20 6.13
2 0.18 0.28 0.24 0.38 0.20 4.53
3 0.24 0.37 0.26 0.36 0.12 2.60
4 0.27 0.38 0.35 0.47 0.20 3.10

Inventory 1 0.04 0.06 0.05 0.06 0.02 2.89
2 0.09 0.12 0.11 0.12 0.02 2.26
3 0.13 0.20 0.17 0.17 0.04 1.71
4 0.16 0.26 0.21 0.23 0.07 2.70

Total Assets 1 0.51 0.63 0.62 0.84 0.33 5.84
2 0.91 1.10 1.03 1.43 0.52 3.51
3 1.31 1.60 1.49 1.82 0.50 3.35
4 1.51 2.02 1.86 2.41 0.90 3.85



33
Panel B: Long-run value-to-book
Long-run value-to-book quartiles
V t Low 2 3 High Diff (4-1) t(diff)
R&D 1 0.03 0.05 0.08 0.23 0.21 17.09
2 0.07 0.10 0.18 0.56 0.50 17.56
3 0.11 0.17 0.32 0.94 0.83 13.30
4 0.17 0.27 0.47 1.37 1.20 12.61

CAPEX 1 0.09 0.12 0.15 0.17 0.08 8.65
2 0.20 0.27 0.37 0.44 0.24 8.60
3 0.33 0.43 0.58 0.73 0.39 7.60
4 0.49 0.62 0.82 1.01 0.52 6.30

LT Debt 1 0.17 0.19 0.15 0.10 -0.07 -1.65
Reduction 2 0.35 0.37 0.31 0.22 -0.13 -2.00
3 0.54 0.57 0.52 0.37 -0.17 -0.94
4 0.76 0.85 0.80 0.57 -0.19 -0.69

Acquisition 1 0.05 0.08 0.08 0.08 0.03 4.54
2 0.11 0.16 0.15 0.20 0.10 5.20
3 0.16 0.24 0.23 0.35 0.19 5.39
4 0.22 0.32 0.34 0.46 0.24 3.59

Cash 1 0.03 0.06 0.16 0.63 0.60 17.40
2 0.04 0.07 0.17 0.69 0.65 12.21
3 0.06 0.07 0.19 0.71 0.65 11.30
4 0.07 0.09 0.25 0.84 0.77 9.45

Inventory 1 0.03 0.04 0.06 0.07 0.04 5.90
2 0.06 0.08 0.12 0.15 0.09 6.57
3 0.08 0.13 0.19 0.22 0.14 5.52
4 0.12 0.16 0.24 0.29 0.18 5.90

Total Assets 1 0.23 0.37 0.56 1.25 1.02 18.69
2 0.47 0.70 1.00 2.02 1.55 8.16
3 0.65 1.04 1.40 2.65 2.00 10.98
4 0.86 1.30 1.88 3.33 2.46 8.62








34
Table 5
The effect of M/B components on post-issue increases in assets and expenditures

This table presents the regression results showing how each of the three components of M/B (firm-specific error,
sector error and long-run value-to-book) affects post-issue increases in assets and expenditures. The dependent
variable is
(

+ =

=
1 ) Asset /Total V ( ln Y
0
t
1 i
i
for V= R&D, capital expenditure, LT debt reduction and
acquisition, and [ ] 1 ) Asset )/Total V ((V ln Y
0 0 t
+ = for V=cash, inventory and total assets, and t=1 to 4.
Panel B reports regression results when M/B is decomposed into two components: total error (=firm-specific error
plus sector error) and long-run value-to-book. Bold letters indicate statistical significance at the 5% level.

=
=
+
+ +
(
(

+
|
|

\
|
+
(
(

+
|
|

\
|
+ + + =
11
1 j
j
2001
1970 i
i 0 6
0
t
5
0
4 3 2 1
mmy IndustryDu
YrDummy ) Asset ln(Total 1
Asset Total
OtherCap
ln 1
Asset Total
PrimaryCap
ln Sector LongRun FirmSpec Y

Firm-
specific
Long run
VtB Sector
Primary
Cap
Other
Cap
Total
Asset
p-value
%
Y t
1

2

3

4

5

6

1
=
2
Adj.R
2
n
R&D 1 (0.01) 0.05 (0.06) 0.14 0.06 0.00 0.00 0.48 1,962
2 (0.01) 0.09 (0.10) 0.29 0.10 0.01 0.00 0.57 1,812
3 (0.01) 0.12 (0.12) 0.40 0.15 0.02 0.00 0.59 1,630
4 (0.01) 0.15 (0.16) 0.47 0.17 0.02 0.00 0.61 1,450

CAPEX 1 (0.00) 0.02 0.03 0.06 0.12 (0.00) 0.00 0.29 3,269
2 0.01 0.04 0.06 0.17 0.18 0.00 0.00 0.38 3,081
3 0.01 0.06 0.04 0.22 0.24 0.01 0.00 0.41 2,766
4 0.01 0.07 0.02 0.25 0.25 0.01 0.00 0.41 2,489

LT Debt 1 0.01 (0.04) (0.01) (0.08) 0.27 (0.02) 0.00 0.33 3,180
Reduction 2 0.03 (0.06) 0.02 (0.16) 0.31 (0.02) 0.00 0.37 3,093
3 0.03 (0.08) 0.02 (0.22) 0.38 (0.03) 0.00 0.40 2,726
4 0.04 (0.11) 0.08 (0.22) 0.43 (0.03) 0.00 0.43 2,427

Acquisition 1 (0.00) (0.01) 0.03 0.03 0.13 (0.00) 91.29 0.16 3,128
2 0.01 (0.01) 0.03 0.04 0.17 (0.00) 31.57 0.19 2,836
3 0.01 (0.01) 0.03 0.08 0.19 (0.00) 27.01 0.20 2,472
4 0.02 (0.01) 0.06 0.10 0.20 0.00 11.64 0.21 2,227

Cash 1 0.01 (0.00) (0.01) 0.87 0.24 0.02 11.07 0.72 3,307
2 0.03 0.00 (0.03) 0.71 0.25 0.03 4.98 0.51 3,143
3 0.02 0.02 (0.05) 0.56 0.25 0.02 63.06 0.41 2,856
4 0.03 0.03 (0.11) 0.52 0.25 0.02 80.26 0.37 2,588

Inventory 1 (0.00) (0.00) 0.01 0.05 0.04 (0.00) 63.40 0.12 3,239
2 (0.01) 0.00 0.00 0.10 0.08 (0.01) 31.63 0.19 3,074
3 (0.01) 0.00 (0.02) 0.10 0.11 (0.01) 20.14 0.21 2,789
4 (0.01) 0.00 (0.03) 0.12 0.12 (0.01) 41.42 0.22 2,523

Total 1 0.00 0.04 0.11 0.94 0.50 0.02 0.01 0.74 3,308
Assets 2 0.04 0.06 0.15 0.82 0.58 0.02 21.63 0.58 3,148
3 0.03 0.08 0.10 0.62 0.64 0.01 2.49 0.53 2,859
4 0.03 0.09 (0.01) 0.52 0.63 0.01 2.49 0.46 2,589

35
Table 6
Calendar-time factor regressions for firms with SEOs in the prior three years

Panel A and B of the Table report calendar-time factor regression results of portfolios consisting of firms that issue equity in the prior three years and belong to
each firm-specific error and long-run value to book quartile respectively as defined in Panel B of Table 3. Quartile breakpoints are formed using all
CRSP/Compustat firms, such that different quartiles have different numbers of SEO firms (quartile 1 has least number of SEO firms and quartile 4 has most SEO
firms). Every month from January 1973 to December 2004, we form equal-weighted (EW) and value-weighted (VW) portfolios of firms that issued seasoned
equity in the past 3 years and belong to that specific quartile. The dependent variable is the excess return of the quartile portfolio over one-month T-bill rate. We
use the Fama and French (1993) three-factor model and Carhart (1997) four-factor model as our factor models, and measure portfolio underperformance as the
intercept () from the factor regressions. *, and ** indicate significance at 5% and 1% level respectively.


Panel A: Calendar-time factor regressions for SEO firms by firm-specific error quartile
Firm-specific error FF 3 Factor Model CARHART 4 Factor Model
Quartile Portfolio (%) MKT SMB HML Adj.
2
R (%) MKT SMB HML UMD Adj.
2
R
Low EW 3 yr -0.11 1.32 0.96 -0.08 0.79 0.09 1.29 0.96 -0.13 -0.19 0.79
2
3 yr
-0.17 1.18 0.97 0.01 0.84 -0.04 1.16 0.97 -0.02 -0.12 0.84
3
3 yr
-0.31* 1.17 0.89 0.09 0.89 -0.15 1.15 0.89 0.05 -0.15 0.89
High
3 yr
-0.54** 1.28 0.82 -0.07 0.90 -0.27* 1.25 0.82 -0.13 -0.25 0.92



Low VW 3 yr 0.05 1.30 0.76 -0.53 0.72 0.08 1.30 0.76 -0.54 -0.03 0.72
2
3 yr
-0.26 1.22 0.75 -0.05 0.78 -0.22 1.21 0.75 -0.06 -0.04 0.78
3
3 yr
-0.32* 1.14 0.30 -0.15 0.84 -0.31* 1.14 0.30 -0.15 -0.01 0.84
High
3 yr
-0.32** 1.12 0.02 -0.24 0.87 -0.32** 1.12 0.02 -0.24 0.00 0.87














36
Panel B: Calendar- time factor regressions for SEO firms by long- run value-to-book quartile
Long run value-to-book FF 3 FACTOR CARHART 4 FACTOR
Quartile Portfolio (%) MKT SMB HML Adj.
2
R (%) MKT SMB HML UMD Adj.
2
R
Low EW 3 yr -0.40 1.21 0.94 0.59 0.69 -0.11 1.17 0.94 0.52 -0.27 0.71
2
3 yr
-0.41** 1.16 0.60 0.35 0.80 -0.20 1.13 0.60 0.30 -0.19 0.82
3
3 yr
-0.31* 1.22 0.75 -0.13 0.89 -0.16 1.20 0.76 -0.17 -0.14 0.89
High
3 yr
-0.30 1.26 1.13 -0.39 0.90 -0.05 1.23 1.13 -0.44 -0.23 0.91

Low VW 3 yr -0.43 1.15 0.39 0.45 0.60 -0.33 1.14 0.39 0.42 -0.10 0.60
2
3 yr
-0.41* 1.11 0.07 0.25 0.71 -0.19 1.08 0.08 0.20 -0.20 0.73
3
3 yr
-0.10 1.16 0.11 -0.41 0.80 -0.18 1.17 0.11 -0.40 0.07 0.80
High
3 yr
-0.14 1.09 0.38 -0.81 0.86 -0.21 1.10 0.38 -0.80 0.07 0.86











37
Table 7
Calendar-time factor regressions for small (big) firms with SEOs in the prior three years

Panel A and B of this table report calendar-time factor regression results of portfolios consisting of small (big) firms that issue equity in the prior three years and
belong to each firm-specific error quartile as defined in Panel B of Table 3. Small firms are defined as pre-issue market capitalization that is smaller than the 20%
breakpoints based on NYSE firms, while big firms are firms with pre-issue market capitalization bigger than the NYSE 20% breakpoints. Quartile breakpoints
are formed using all CRSP/Compustat firms, such that different quartiles have different numbers of SEO firms (quartile 1 has least number of SEO firms and
quartile 4 has most SEO firms). Every month we form equal-weighted (EW) and value-weighted (VW) portfolios of firms that issued seasoned equity in the past
3 years and belong to that specific quartile. The dependent variable is the excess return of the quartile portfolio over one-month T-bill rate. We use the Fama and
French (1993) three-factor model and Carhart (1997) four-factor model as our factor models, and measure portfolio underperformance as the intercept () from
the factor regressions. $, *, and ** indicate significance at 10%, 5% and 1% level respectively.


Panel A Calendar- time three factor regressions for SEO firms by firm-specific error quartile based on size
Firm-specific error Firm size<=20% NYSE breakpoints Firm size>20% NYSE breakpoints
FF 3 FACTOR FF 3 FACTOR
Quartile Portfolio (%) MKT SMB HML Adj. R
2
(%) MKT SMB HML Adj. R
2

Low EW 3 yr -0.16 1.32 1.05 -0.07 0.77 0.22 1.38 0.47 -0.25 0.65
2 3 yr -0.17 1.07 1.05 -0.16 0.79 -0.15 1.27 0.79 0.12 0.75
3 3 yr -0.39$ 1.15 1.22 0.13 0.78 -0.20 1.18 0.56 0.04 0.86
High 3 yr -0.83** 1.30 1.28 0.08 0.84 -0.38** 1.29 0.58 -0.12 0.89

Low VW 3 yr 0.00 1.31 0.95 -0.63 0.75 0.11 1.37 0.55 -0.39 0.60
2 3 yr -0.14 1.07 1.10 -0.49 0.77 -0.26 1.27 0.68 0.09 0.72
3 3 yr -0.31 1.14 1.31 -0.47 0.79 -0.36* 1.14 0.20 -0.10 0.83
High 3 yr -0.50** 1.21 1.13 -0.40 0.85 -0.33** 1.12 -0.01 -0.22 0.86











38
Panel B Calendar- time four factor regressions for SEO firms by firm-specific error quartile based on size
Firm-specific error Firm size<=20% NYSE breakpoints Firm size>20% NYSE breakpoints
CARHART 4 FACTOR CARHART 4 FACTOR
Quartile Portfolio (%) MKT SMB HML UMD Adj. R
2
(%) MKT SMB HML UMD Adj. R
2

Low EW 3 yr 0.07 1.28 1.05 -0.13 -0.22 0.78 0.29 1.37 0.47 -0.27 -0.06 0.65
2 3 yr -0.13 1.07 1.05 -0.17 -0.04 0.79 0.08 1.24 0.79 0.07 -0.21 0.77
3 3 yr -0.24 1.13 1.22 0.10 -0.14 0.79 -0.03 1.16 0.57 0.01 -0.15 0.87
High 3 yr -0.55** 1.26 1.28 0.01 -0.26 0.86 -0.09 1.25 0.59 -0.18 -0.27 0.91

Low VW 3 yr -0.01 1.31 0.95 -0.63 0.01 0.75 0.18 1.36 0.56 -0.41 -0.07 0.60
2 3 yr -0.27 1.09 1.10 -0.46 0.12 0.77 -0.17 1.26 0.68 0.07 -0.08 0.72
3 3 yr -0.34 1.15 1.31 -0.46 0.03 0.79 -0.33* 1.14 0.20 -0.11 -0.03 0.83
High 3 yr -0.56** 1.22 1.13 -0.38 0.05 0.85 -0.32** 1.12 -0.01 -0.23 -0.01 0.86




Figure 1
Average post-issue monthly abnormal returns across M/B components

This figure illustrates average monthly abnormal returns over the three
belong to each firm-specific error and
December 2003, we form equal-weig
and belong to that specific quartile. We regress the excess portfolio return on the Carhart four factors, and the
intercept () from the factor regressions is the reported averag





















39
issue monthly abnormal returns across M/B components
This figure illustrates average monthly abnormal returns over the three-year post-issue period for issuing firms that
and long-run value-to-book quartile. Every month from January 1973 to
weighted (EW) portfolios of firms that issued seasoned equity in the past 3 years
and belong to that specific quartile. We regress the excess portfolio return on the Carhart four factors, and the
) from the factor regressions is the reported average post-issue abnormal return.
issue period for issuing firms that
quartile. Every month from January 1973 to
hted (EW) portfolios of firms that issued seasoned equity in the past 3 years
and belong to that specific quartile. We regress the excess portfolio return on the Carhart four factors, and the
issue abnormal return.

40


Appendix Table A1
The effect of M/B components on post-issue increases in assets and expenditures (decompose M/B using past-
only information)
This table presents the regression results showing how each of the three components of M/B ratio, firm-specific
error, sector error and long-run value-to-book affects SEO firms use of funds after issuance. Unlike Table 5, the
time-series sector error and long-run value-to-book components here are calculated using only past five year
industry accounting multiples. Dependent variable is
(

+ =

=
1 ) / ( ln
0
1
TotalAsset V Y
t
i
i t
for V=R&D, capital
expenditure, LT debt reduction and acquisition, and [ ] 1 ) / ) (( ln
0 0
+ = TotalAsset V V Y
t t
for V=cash, inventory and
total assets. Bold letters indicate statistical significance at 5% level.

= =
+ + +
(
(

+
|
|

\
|
+
(
(

+
|
|

\
|
+ + + =
11
1 j
j
2001
1970 i
i 0 6
0
t
5
0
4 3 2 1 t
mmy IndustryDu YrDummy ) set ln(TotalAs 1
TotalAsset
OtherCap
ln 1
TotalAsset
PrimaryCap
ln Sector_PS LongRun_PS FirmSpec Y


Firm-
specific
Long run
VtB_PS Sector_PS
Primary
Cap
Other
Cap
Total
Asset
p-value
%
Y t
1

2

3

4

5

6

1
=
2
Adj.R
2
n
R&D 1 (0.01) 0.04 (0.03) 0.14 0.06 0.00 0.00 0.47 1,914
2 (0.01) 0.07 (0.04) 0.30 0.11 0.01 0.00 0.56 1,765
3 (0.00) 0.09 0.02 0.41 0.15 0.02 0.00 0.58 1,585
4 (0.01) 0.12 (0.00) 0.48 0.17 0.02 0.00 0.60 1,405

CAPEX 1 (0.00) 0.02 0.04 0.06 0.11 (0.00) 0.01 0.29 3,174
2 0.01 0.04 0.08 0.18 0.18 0.00 0.11 0.38 2,980
3 0.01 0.05 0.04 0.23 0.24 0.01 0.02 0.41 2,666
4 0.01 0.06 0.01 0.25 0.25 0.01 0.30 0.40 2,389

LT Debt 1 0.01 (0.03) (0.04) (0.08) 0.27 (0.02) 0.00 0.32 3,085
Reduction 2 0.03 (0.05) (0.04) (0.17) 0.31 (0.02) 0.00 0.36 2,998
3 0.03 (0.06) (0.11) (0.23) 0.39 (0.02) 0.00 0.40 2,632
4 0.04 (0.08) (0.06) (0.23) 0.43 (0.03) 0.00 0.43 2,333

Acquisition 1 (0.01) (0.00) 0.02 0.02 0.13 (0.00) 44.77 0.15 3,040
2 0.00 0.00 0.01 0.04 0.17 (0.00) 70.78 0.19 2,750
3 0.01 (0.00) (0.03) 0.07 0.19 0.00 67.57 0.20 2,389
4 0.02 0.00 (0.03) 0.09 0.20 0.00 46.99 0.21 2,148

Cash 1 0.01 (0.01) 0.03 0.87 0.24 0.02 2.17 0.71 3,211
2 0.03 (0.00) 0.01 0.72 0.25 0.03 1.29 0.51 3,041
3 0.03 0.01 0.01 0.57 0.25 0.02 25.85 0.41 2,754
4 0.03 0.01 0.05 0.53 0.25 0.02 28.01 0.37 2,486

Inventory 1 (0.00) (0.00) 0.02 0.05 0.04 (0.00) 72.67 0.12 3,144
2 (0.01) 0.00 0.01 0.10 0.07 (0.01) 35.85 0.18 2,973
3 (0.01) 0.00 (0.03) 0.10 0.11 (0.01) 21.09 0.21 2,688
4 (0.01) (0.00) (0.01) 0.13 0.12 (0.01) 67.42 0.22 2,422

Total 1 0.00 0.04 0.15 0.94 0.50 0.02 0.00 0.74 3,212
Assets 2 0.04 0.06 0.21 0.82 0.58 0.02 17.21 0.58 3,046
3 0.03 0.07 0.21 0.63 0.64 0.01 7.61 0.53 2,757
4 0.03 0.07 0.14 0.52 0.63 0.01 16.51 0.46 2,487
41
Appendix Table A2
Calendar-time factor regressions for firms with SEOs in the prior three years using alternative decomposition methodology

This table reports calendar-time factor regression results of portfolios consisting of firms that issue equity in the prior three (five) years and belong to each long-
run value to book quartile. Unlike reported in Panel B in Table 6, the long-run value-to-book component is calculated using only past five year industry
accounting multiples. The breakpoints for quartiles are calculated using the universe of CRSP/Compustat stocks, so each quartile have uneven number of SEO
firms (quartile 4 contains the most while quartile 1 contains the least). Every month from January 1978 to December 2004, we form equal-weighted (EW) and
value-weighted (VW) portfolios of firms that issued seasoned equity in the past 3 years and belong to that specific quintile. The dependent variable is the
portfolio excess return of the quartile portfolio over one-month T-bill rate. We use both Fama and French (1993) three-factor models and Carhart (1997) four-
factor model as our factor model, and measure the portfolio underperformance as intercept () from factor regressions. *, and ** indicate significance at 5% and
1% level respectively.

Long run VtB PS FF 3 FACTOR CARHART 4 FACTOR
Quartile Portfolio (%) MKT SMB HML Adj.
2
R (%) MKT SMB HML UMD Adj.
2
R
Low EW 3 yr -0.49** 1.20 0.66 0.49 0.83 -0.31* 1.18 0.68 0.45 -0.18 0.84
2
3 yr
-0.45** 1.18 0.60 0.39 0.86 -0.34** 1.17 0.61 0.36 -0.11 0.87
3
3 yr
-0.46** 1.23 0.78 -0.01 0.90 -0.30* 1.21 0.80 -0.04 -0.16 0.91
High
3 yr
-0.29 1.27 1.06 -0.49 0.89 -0.06 1.25 1.09 -0.54 -0.23 0.91


Low VW 3 yr -0.55** 1.24 0.17 0.40 0.78 -0.42** 1.23 0.19 0.38 -0.13 0.79
2
3 yr
-0.48** 1.17 0.05 0.40 0.76 -0.48* 1.17 0.05 0.40 0.00 0.76
3
3 yr
-0.33 1.19 0.23 -0.22 0.79 -0.30 1.19 0.23 -0.22 -0.03 0.79
High
3 yr
-0.28 1.13 0.48 -0.80 0.88 -0.32 1.14 0.48 -0.79 0.04 0.88