why do firms issue equity?(Journal of finance, 2007年2月)

 
from the Journal of Finance,  vol 62 no.1, february 2007
 
by Dittmar, M. & Thakor, A.
 
 
ABSTRACT

We develop and test a new theory of security issuance that is consistent with the puzzling stylized fact that firms issue equity when their stock prices are high. The theory also generates new predictions. Our theory predicts that managers use equity to finance projects when they believe that investors’ views about project payoffs are likely to be aligned with theirs, thus maximizing the likelihood of agreement with investors. Otherwise, they use debt. We find strong empirical support for our theory and document its incremental explanatory power over other security-issuance theories such as market timing and time-varying adverse selection.