Using a size benchmark,however,introduces a confounding effect.Issuing firms tend to be growth firms,and nonissuers tend to be value firms.Thus,in addition to comparing issuers with nonissuers,growth firms are being compared with value firms.To remove this confounding effect,Table 1 also reports the average annual returns on issuing firms and nonissuers matched by both size and book-to-market(style"matching).In so doing,some issuers are lost because of missing book value information.Table 1 shows that when issuers are compared to style- matched nonissuers,the underperformance narrows slightly to 3.4%per year in the five years after issuing.Statistical significance levels are not reported in Table 1,because the large degree of overlap in post-issue returns among the sample greatly decreases the number of independent observations. Inspection of Table I shows that issuers do not underperform in the first six months after issuing.This is probably due to a combination of momentum effects and a desire to avoid litigation by making sure that earnings numbers meet analyst forecasts in the first two quarters after issuing(negative earnings surprises are rare immediately following an SEO(Korajczyk, Lucas,and McDonald(1991))).In the roughly two years after this six month honeymoon, however,there is very substantial underperformance,as firm performance fails to live up to optimistic expectations.By year five,however,the abnormal returns are close to zero, suggesting that the underperformance does not persist forever. Most of the empirical literature concerning the long-run performance of SEOs has used two procedures:buy-and-hold returns and 3-factor regressions.The results of studies using buy- and-hold returns with a style benchmark are reported in Table 2.3 3 Jegadeesh(2000)and Brav,Geczy,and Gompers(2000)also adjust for momentum,in addition to size and book- to-market,with qualitatively unchanged results. 1212 Using a size benchmark, however, introduces a confounding effect. Issuing firms tend to be growth firms, and nonissuers tend to be value firms. Thus, in addition to comparing issuers with nonissuers, growth firms are being compared with value firms. To remove this confounding effect, Table 1 also reports the average annual returns on issuing firms and nonissuers matched by both size and book-to-market (“style” matching). In so doing, some issuers are lost because of missing book value information. Table 1 shows that when issuers are compared to style￾matched nonissuers, the underperformance narrows slightly to 3.4% per year in the five years after issuing. Statistical significance levels are not reported in Table 1, because the large degree of overlap in post-issue returns among the sample greatly decreases the number of independent observations. Inspection of Table 1 shows that issuers do not underperform in the first six months after issuing. This is probably due to a combination of momentum effects and a desire to avoid litigation by making sure that earnings numbers meet analyst forecasts in the first two quarters after issuing (negative earnings surprises are rare immediately following an SEO (Korajczyk, Lucas, and McDonald (1991))). In the roughly two years after this six month honeymoon, however, there is very substantial underperformance, as firm performance fails to live up to optimistic expectations. By year five, however, the abnormal returns are close to zero, suggesting that the underperformance does not persist forever. Most of the empirical literature concerning the long-run performance of SEOs has used two procedures: buy-and-hold returns and 3-factor regressions. The results of studies using buy￾and-hold returns with a style benchmark are reported in Table 2.3 3 Jegadeesh (2000) and Brav, Geczy, and Gompers (2000) also adjust for momentum, in addition to size and book￾to-market, with qualitatively unchanged results