The timing of seasoned equity offerings: a duration analysis
Abstract
Purpose
Using a sample of 6,198 US firms that went public from 1975 to 2004, the purpose of this paper is to examine when these firms come back to the equity market and investigate the determinants of the timing decision.
Design/methodology/approach
By properly modeling the time between two consecutive equity offerings using the duration analysis, the author tests different hypotheses in a unified framework and investigates their relative importance in explaining the timing decision of seasoned equity issuance.
Findings
The paper documents that firms often return for a new round of equity issuance shortly after the preceding one. First seasoned equity offerings (SEOs) after the IPO are more likely to be conducted at a faster speed than subsequent (follow-on) SEOs. The duration analysis shows that first SEOs are more likely to ride the aggregate stock market wave and take advantage of the idiosyncratic mispricing of the stock than follow-on SEOs. On the contrary, both macroeconomic and firm-specific growth opportunities are more important for follow-on SEOs than for first SEOs.
Originality/value
The paper employs a novel econometric method to depict a dynamic picture of SEO decisions. The results provide a possible explanation to reconcile the discrepancies in the findings of prior studies. Namely, those studies examining mostly first SEOs could bias toward the timing hypothesis, while those studies focussing on follow-on SEOs is more likely to find evidence that supports the need for growth.
Keywords
Acknowledgements
JEL Classifications — G30, G32, C41
The author is grateful to the valuable comments from Herman Bierens, Laura Field, Edith Ginglinger, Ozgur Ince, Michelle Lowry, Dennis Sheehan, and the participants at the 2006 NFA meetings and the 2008 FMA meetings. The author is also indebted to Jay Ritter for the use of his IPO data, and Susan Chaplinsky for the use of her SEO filing date data. Finally, the author acknowledges the financial support from School of Business Administration Faculty Research Fellowship at Oakland University. All errors are the author's own.
Citation
Qian, H. (2014), "The timing of seasoned equity offerings: a duration analysis", Managerial Finance, Vol. 40 No. 6, pp. 565-586. https://doi.org/10.1108/MF-09-2013-0244
Publisher
:Emerald Group Publishing Limited
Copyright © 2014, Emerald Group Publishing Limited