Question

Explain the long-term underperformance of firms issuing equity

Answer 1

Long-term underperformance of firm which are issuing equity can be attributed to various reasons and they could be as following-

A. Long-term underperformance of the firm can be attributed to to slower growth and lower profits which has not been able to provide them with desired valuation in the stock market.

B. Long-term underperformance of the firm can also be attributed to not having any kind of Core competitiveness and that will be not be helpful in attracting any kind of premium valuation from stock market participants.

C.long-term underperformance of the firms can also be attributed to corporate frauds and underperformance of the management in the longer period of time

D. Long-term underperformance of the firm can also be related to to industry to which the firm is associated with has gone obsolete in nature, and it has been replaced with new technology

E. long-term underperformance can also be attributed to low level of operating efficiency and low level of operating profits and asset turnover ratios.

F. long-term underperformance can be attributed to low level of corporate social responsibility and having a bad business reputation in the market

G. long-term underperformance can also be attributed to failure of the business organisation in able to communicate to its shareholders for a longer period of time so it has not been able to communicate its proper efficiency.