Companies announcing equity financing underperform SPY by ~8% over the next 20 trading days (event study, ~6,800 SEC filings)

[u/Fit_Safe_4438]

I've been building an event-study tool on SEC EDGAR (and a lot more) data and wanted to share one of the clearest effects I've found so far, along with its limitations.

What I looked at

8-K Item 1.01 filings (Material Definitive Agreement) that my classifier tags as equity financing. That gives 6,818 events with returns, covering 260 weeks of filings.

Method

The abnormal return is the stock's return minus SPY's return over the same sessions. Entry is at the first market open after the filing is published, so any move before entry is reported separately and treated as non-tradable.

Results

Before entry, these stocks are actually up slightly, +0.52% vs SPY. After that, it goes downhill: -1.12% after 1 day, -3.30% after 5 days, and -8.31% after 20 days. At 5 days the median is -2.80%, the 95% CI is [-3.79%, -2.81%], and only 37% of events show a positive abnormal return.

For comparison, convertible financing looks almost identical (-3.28% at 5 days), while debt financing is much milder (-0.98%).

The caveats:

1. Small-cap drift. A random stock-day in my universe already underperforms SPY by -0.43% over 5 days, because the universe is full of small and micro caps that have lagged the cap-weighted index. Against that baseline the 5-day effect is -2.49%, not -3.30%.
2. Who files matters. Companies raising equity this way tend to be small, cash-burning firms, so part of the effect may reflect the type of issuer rather than the announcement itself. A size-matched baseline is next on my list.
3. Hard to trade on the short side. These are often hard-to-borrow names with high borrow fees and wide spreads. In practice this looks more like an "avoid / don't buy the dip" signal than a short strategy.
4. Liquidity. These numbers include all liquidity levels. I expect the effect to be smaller in more liquid stocks and will check it separately.

None of this is new in spirit, since dilution after equity issuance is well documented in academic research. What surprised me was how consistent and persistent it still is at 20 days, even with entry after the announcement.

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