Corporate Earnings and Financings: An Empirical Analysis

This article examines the long-term behavior of corporate earnings around three corporate financing events: sales of common stock, convertible bonds, and straight bonds. The article shows that earnings declined for all issuers and that more capital is raised the larger the earnings decline. These findings indicate that external financings are motivated by earnings declines. No evidence is found of a relationship between the size of the subsequent earnings downturn or the amount of capital raised and stock price reactions to the financing announcements. These findings suggest that security sales did not systematically provide new information about either the magnitude of subsequent earnings downturn or the amount of financing.