Market Feedback and Equity Issuance: Evidence from Repeat Equity Issues

Higher first-year post-issue returns are associated with a significantly higher probability of follow-on equity issuance over the next 5 years. This result holds when we control for pre-issue returns and other factors known to affect the probability of equity issuance. The result is most consistent with the market feedback hypothesis that a high post-issue return encourages managers to increase the firm's investment because it implies that, in the market's view, the marginal return to the project is high.