The Puzzle of Frequent and Large Issues of Debt and Equity

More frequent, larger, and more recent debt and equity issues in the prior 3 fiscal years are followed by lower stock returns in the subsequent year. The intercept of a q-factor calendar-time regression for the value-weighted (VW) portfolio of firms with at least 3 large issues is -0.63% per month (t-stat. = -4.31). Purging the factor returns of recent issuers increases the magnitude of the estimated underperformance following frequent equity issues. A VW Fama-MacBeth regression shows that firms with 3 equity issues underperform nonissuers by 0.65% per month (t-stat. = -2.65). Earnings announcement returns are low following frequent issues, especially equity issues.