GROWTH OPPORTUNITIES AND THE STOCK-PRICE RESPONSE TO NEW FINANCING

I document the effect of growth opportunities on the stock price response to security offerings. For equity offerings, the stock price decline for mature firms exceeds the decline for growth firms. For straight and convertible debt offerings, mature firms experience a significant price decline while growth firms experience no significant price change. Regression analysis indicates that the stock price response to new financing is significantly, positively related to a variety of growth opportunity measures. Holding growth opportunities fixed, the stock price response depends on the type of security offered (equity vs. debt) and, for straight debt offerings, Moody's bond ratings.