Hierarchical complexity and seasoned equity offerings
Abstract
Purpose
Using a substantial sample of U.S.-listed firms’ Seasoned Equity Offerings (SEOs) spanning the period from 2012 to 2017, we examine the relationship between hierarchical complexity and the selection of SEO methods.
Design/methodology/approach
We employ multinomial logistic regression to examine the influence of hierarchical complexity on the choice among various SEO techniques. To strengthen the robustness of our results, we employ a two-stage-least-squares (2SLS) analysis and utilize propensity score matching to address potential endogeneity issues and mitigate self-selection bias, respectively.
Findings
The research indicates that companies characterized by high levels of hierarchical complexity tend to steer clear of accelerated offerings but exhibit a preference for rights offerings over firm commitment offerings. This tendency is plausibly attributed to the impact of hierarchical complexity, which diminishes information transparency and heightens information asymmetry. Furthermore, the study highlights a negative association between hierarchical complexity and firm value following SEOs.
Originality/value
While an expanding body of evidence establishes a connection between hierarchical complexity and various firm- or market-specific activities, to the best of our knowledge, there are no specific empirical studies that have investigated how hierarchical complexity impacts equity offering strategies. Building on the established correlation in previous research between hierarchical complexity, information transparency, and asymmetric information, and recognizing the critical role of information in the selection of SEO methods, our study reveals that hierarchical complexity may diminish information transparency, heighten information asymmetry, and hinder outside investors from fully grasping a firm’s actions and outcomes. Consequently, this influence extends to the methods of offerings chosen by listed companies.
Keywords
Acknowledgements
We thank the members of the UD_DUE Teaching and Research Team in Corporate Finance and Asset Pricing (TRT-CFAP), the participants at the 2020 Australasian Finance and Banking Conference for their fruitful comments and suggestions.
Funding: This research is funded by Funds for Science and Technology Development of the University of Danang under project number B2023-DN04-10.
All remaining errors are our own.
Citation
Hoang, V.A., Nguyen, H.C., Truong, B.T., Le, P.U., Phan, H.L. and Thai, T.H.A. (2024), "Hierarchical complexity and seasoned equity offerings", Review of Behavioral Finance, Vol. ahead-of-print No. ahead-of-print. https://doi.org/10.1108/RBF-03-2024-0058
Publisher
:Emerald Publishing Limited
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