Is Market Timing Good for Shareholders?

Corporations often transact in their own mispriced stock. This activity, known as equity market timing, can generate substantial profits and increase the long-term stock price. We challenge a closely related popular view that market timing always benefits firm shareholders. Opportunistic financing maneuvers by a firm can negatively affect its uninformed stock owners because of adverse selection and the change in the firm’s short-term price, whereas the long-term returns do not accumulate to departing stockholders. The negative effect of market timing on stockholders increases with the share turnover. Furthermore, the effect of timing is asymmetric: shareholders prefer that the firm corrects underpricing rather than overpricing. Our theory can be used to better interpret the observed stock issuance and repurchase activities of firms. This paper was accepted by Gustavo Manso, finance.

Net stock issuance anomaly and cash flow explanation: A research note

Prior studies show that net stock issuance is negatively associated with the cross section of future stock returns, reflecting a market anomaly. Our study provides empirical evidence on whether cash flow can mitigate such anomaly. Consistent with prior research, we initially provide evidence of the anomaly in our sample and that the anomaly persists in the presence of cash flow. We then decompose net stock issuance into stock issues and stock repurchases and find that the anomaly is only driven by stock issues but not stock repurchases and that the stock issues’ anomaly persists even in the presence of cash flow. JEL Classification: G12, G14

A Path of the Reformation of China’s Stock Issuance Registration System

Securities issuance audit system is the most basic system of a country's securities market, other systems play the role of ensuring its operation smoothly. The Third Plenary Session of the Eighteenth Central Committee of the Communist Party of China has established the registration system of stock issuance as the reform target. The registration system, that most mature markets used, can make up for the shortage of approval system of China's stock issuance audit system at present. However, the registration system also has a higher realization of the foundation. This paper analyzes the shortcomings of the stock issuance under the approval system, discusses the basis of the implementation of the registration system, and puts forward some suggestions for reference from the functions of the CSRC, the qualities of investors and the supporting system of stock issuance.

International Real Estate Review

By using data on 51 real estate investment trusts (REITs) and 755 real estate deals from 2003¡V2011 in Japan, this study presents evidence that the funding approach decisions of a sponsor-backed REIT differ from those of a REIT without a sponsor. The implications derived from the presented empirical analyses are threefold. First, with regard to the determinants of the choice of the funding approach, under a continuous high stock price trend or a rise in the stock price of a REIT, the probability of choosing stock issuance increases when the REIT and sponsor firm strike real estate deals. Second, the literature asserts that real estate asset liquidity and debt choice are positively related. However, our results suggest that under a high stock price trend, a REIT chooses stock issuance even when it purchases real estate assets that have a high degree of liquidity. Third, debt issuance is chosen when a REIT and its sponsor firm make numerous and large real estate deals when the stock price of the REIT falls.