The leading explanation for the post-issue long-run
stock return underperformace of seasoned equity
offering firms is that investors have optimistic
expectations regarding future earnings and the
underperformance occures as these expectations are
corrected over time. To directly test this
hypothessis, we examine investors' reaction to
quarterly earnings announcements over a five-year
period following the offering for a large sample of
seasoned equity issuing firms. In general, our
evidence suggests that investorsare not disappointed
by earnings announcements that follow seasoned
equity offerings. This result is not sensitive to
widening the windown over which earnings
announcement returns are computed. This result also
holds true for subsets of equity issuing firms. The
choice fo these three subsets is predicated by
extant evidence that these firms are likely to
convey relatively more unfavorable information
throung their earnings announcements. Overall, our
findings are inconsistent with the optimistic
expectations hypotgesis.