Does Divergence of Opinion Affect Stock Returns? Evidence from Japanese SEOs

The divergence of opinion model originally proposed by Miller (1977) has recently received a great deal of attention. Focusing on the unique offering process of Japanese seasoned equity offerings (SEOs), we are able to directly test the Miller model. A comparable analysis cannot be performed on U.S. SEOs. We find our proxy for divergence of opinion is negatively related to stock returns on both the announcement day and the issue day. This...