Heterogeneous Beliefs and Stock Price Impact of Security Issuance

The stock price impact of security issuance is related to the announcement, as well as to investors’ cognitive characteristics. Based on the feature of short selling situation in Chinese market, this paper presents a security issuance model to explore the effect of heterogeneous beliefs among investors on stock price impact of firm security issuance, and then uses a sample of listed firms that issued equity or debt between 2008 and 2011, to examine empirically the relationship between heterogeneous beliefs and stock price impact of security issuance. The results indicate that the stock price impact of an equity issue is negative, and that of a straight debt issue is zero. Moreover, the heterogeneity of investors’ beliefs is negatively related to the stock price impact for equity issuers, but unrelated to that for debt issuers. It shows that the relationship between heterogeneous beliefs and the stock price impact is influenced by the type of security.