Share issuance and equity returns in Borsa Istanbul

This paper investigates the predictive power of share issuance on equity returns in BIST. The share issuance measure which is the annual logarithmic change in shares outstanding that is adjusted for distribution events is not significantly related to expected equity returns in a univariate setting. This is due to the prevalence of rights offerings in BIST and the consequent mechanical relation between the issuance measure and the book-to-market effect. After controlling for book-to-market, size and momentum factors, there is a significantly negative relation between share issuance and expected returns, especially for longer return horizons. The results from the portfolio analysis confirm this finding and show that the portion of share issuance that cannot be explained by the book-to-market effect has a strong negative cross-sectional relation with expected equity returns in BIST.