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Article
Publication date: 1 May 1992

Michael S. Long, Ileen B. Malitz and Stephen E. Sefcik

We provide evidence of stock market performance prior to announcements of the assuance or retirement of securities which is consistent with Myers and Majluf [1984] and…

Abstract

We provide evidence of stock market performance prior to announcements of the assuance or retirement of securities which is consistent with Myers and Majluf [1984] and Miller and Rock [1985]. Stocks of firms issuing seasoned common equity are significantly over‐valued in the market prior to the issue, but in the year following, decline to their original level. Stocks of firms issuing convertible debt also are over‐valued, but to a lesser degree than that of firms issuing seasoned equity. Stock of firms issuing straight debt appears to be neither over‐valued nor undervalued. The after‐market firm performance, measured by earnings, cash flows or dividends, is consistent with Miller and Rock. We document a decline in after‐market performance for firms issuing convertible or straight debt and an improvement for those repurchasng shares. However, contrary to predictions, we find that firms issuing seasoned equity do not have lower earnings or cash flows in the following year, and increase their rate of dividend payment as well. We document evidence indicating that firms issue equity to maintain or increase dividends. The market anticipates the dividend increase and shows no response to announcements of dividend changes following an equity issue. However, we are unable to explain why the market reacts in such a negative manner to equity issues, when the after‐market performance of the firm is as expected.

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Managerial Finance, vol. 18 no. 5
Type: Research Article
ISSN: 0307-4358

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Book part
Publication date: 17 November 2010

Rebecca Abraham and Charles Harrington

Seasoned equity offerings (SEOs) are sales of stock after the initial public offering. They are a means to raise funds through the sale of stock rather than the issuance…

Abstract

Seasoned equity offerings (SEOs) are sales of stock after the initial public offering. They are a means to raise funds through the sale of stock rather than the issuance of additional debt. We propose a method to predict the characteristics of firms that undertake this form of financing. Our procedure is based on logistic regression where firm-specific variables are obtained from the perspective of the firm's need to raise cash such as high debt ratios, high current liabilities, reduction and changes in current debt, significant increase in capital expenditure, and cash flows in terms of cash as a percentage of assets.

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Advances in Business and Management Forecasting
Type: Book
ISBN: 978-0-85724-201-3

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Article
Publication date: 25 November 2021

Ju Hyun Kim and Kyojik Song

The authors compare the post-issue stock and operating performance of rights issue versus public offer firms using Korean data. The authors find that the stock returns of…

Abstract

The authors compare the post-issue stock and operating performance of rights issue versus public offer firms using Korean data. The authors find that the stock returns of rights issue firms are less negative than those of public offering firms during the three years subsequent to the seasoned equity offering. The authors further find that the profitability of rights offering firms is superior to those of public offering firms and that the ratio of sales to assets for rights issue firms is much higher over the post-issue period. The results substantiate Heinkel and Schwartz’s (1986) and Eckbo and Masulis’ (1992) theoretical models that posit firms with better quality tend to select the rights issue rather than public offer method when issuing seasoned equity.

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Journal of Derivatives and Quantitative Studies: 선물연구, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1229-988X

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Article
Publication date: 3 June 2014

Hong Qian

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…

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.

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Managerial Finance, vol. 40 no. 6
Type: Research Article
ISSN: 0307-4358

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Article
Publication date: 21 September 2012

Sazali Abidin, Krishna Reddy and Liehui Chen

Since the initiation of the share split reform by the Chinese Securities Regulatory Commission (CSRC) in 2005, the private placement has become the major source of raising…

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Abstract

Purpose

Since the initiation of the share split reform by the Chinese Securities Regulatory Commission (CSRC) in 2005, the private placement has become the major source of raising equity after IPO. The purpose of this paper is to investigate why listed firms in China prefer private placements compared to other options of raising capital.

Design/methodology/approach

The ordinary least squares regression, the piecewise regression and the cross‐sectional regression analysis were undertaken to investigate the determinants and characteristics of the seasonedequity offerings announcement effects. Probit regression analysis was taken to estimate the probability of a firm choosing private placements.

Findings

The authors find positive significant announcement abnormal returns for private placement. The findings also indicate that operating performance deteriorates immediately after announcement and poor operating performance is more likely to be contributed by large size portfolios, which suggests size effect.

Research limitations/implications

The paper's evidence contributes to an understanding of the wider implication of the share split reform undertaken by the CSRC.

Practical implications

The paper provides insights for policy makers in China and around the world who have and wish to adopt similar practices within their jurisdictions. Similar research can be conducted in other emerging markets to enable better understanding and implications of seasoned equity offerings on firm financial performance.

Originality/value

The paper is novel in regard to the data and the wider research paradigm used.

Details

International Journal of Managerial Finance, vol. 8 no. 4
Type: Research Article
ISSN: 1743-9132

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Book part
Publication date: 9 September 2020

Peter Dadalt, Sirapat Polwitoon and Ali Zadeh

We revisit the performance of seasoned equity offerings (SEOs) in Japan against the backdrop of the Tokyo Stock Exchange's historical nine-year run up from 1980 to 1989…

Abstract

We revisit the performance of seasoned equity offerings (SEOs) in Japan against the backdrop of the Tokyo Stock Exchange's historical nine-year run up from 1980 to 1989, with the time period chosen for the purpose of comparison to previous studies. We analyze the long-run performance of 427 issues or 387 Japanese firms that conducted SEOs from 1980–1990. Initial results indicate that SEOs firms underperform standard benchmarks over subsequent 3- and 5-year periods after issuing. The results from value-weighted portfolios, however, show that SEOs outperform three out of five benchmarks. The results from the Fama-French three factor model show that all of the 16 SEO portfolios (formed by size and book-to-market quartiles) have positively significant intercepts, and most loadings are significant. The size loadings from time series three-factor model of value-weighted portfolio show that SEO sample firm returns exhibit characteristics of large firms as opposed to those of small firms under equally weighted portfolios. Our results support the arguments that (1) the returns of issuing firms are not idiosyncratic, but rather covary with the common factors of nonissuing firms and that (2) the underperformance of SEOs is sensitive to the precise test specifications.

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Advances in Pacific Basin Business, Economics and Finance
Type: Book
ISBN: 978-1-83867-363-5

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Article
Publication date: 16 December 2019

Felix Lorenz

The purpose of this paper is to contribute to the literature on seasoned equity offerings (SEOs) by examining the underpricing of European real estate corporations and…

Abstract

Purpose

The purpose of this paper is to contribute to the literature on seasoned equity offerings (SEOs) by examining the underpricing of European real estate corporations and identifying determinants explaining the phenomenon of setting the offer price at a discount at SEOs.

Design/methodology/approach

With a sample of 470 SEOs of European real estate investment trusts (REITs) and real estate operating companies (REOCs) from 2004 to 2018, multivariate regression models are applied to test for theories on the pricing of SEOs. This paper furthermore tests for differences in underpricing for REITs and REOCs as well as specialized and diversified property companies.

Findings

Significant underpricing of 3.06 percent is found, with REITs (1.90 percent) being statistically less underpriced than REOCs (5.08 percent). The findings support the market timing theory by showing that managers trying to time the equity market gain from lower underpricing. Furthermore, underwritten offerings are more underpriced to reduce the risk of the arranging bank, but top-tier underwriters are able to reduce offer price discounts by being more successful in attracting investors. The results cannot support the value uncertainty hypothesis, but they are in line with placement cost stories. In addition, specialized property companies are subject to lower underpricing.

Practical implications

An optimal issuance strategy taking into account timing, relative offer size and the choice of the underwriter can minimize the amount of “money left on the table” and therefore contribute to the lower cost of raising capital.

Originality/value

This is the first study to investigate SEO underpricing for European real estate corporations, pricing differences of REITs and REOCs in seasoned offerings and the effect of market timing on the pricing of SEOs.

Details

Journal of Property Investment & Finance, vol. 38 no. 3
Type: Research Article
ISSN: 1463-578X

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Article
Publication date: 1 March 2006

Bart Frijns, Farshid Navissi, Alireza Tourani‐Rad and Lana Tsai

This paper aims to investigate whether completed vs withdrawn equity offerings result in different stock price performance prior to announcement and between announcement…

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2018

Abstract

Purpose

This paper aims to investigate whether completed vs withdrawn equity offerings result in different stock price performance prior to announcement and between announcement and withdrawal or completion.

Design/methodology/approach

Investigates stock price performance prior to equity offerings announcements and between the announcement and actual completion or withdrawal. Stock price performance is measured by cumulative abnormal returns (CARs).

Findings

It was found that stock price performance is strong only for firms that later complete the offerings. Firms that withdraw their offerings have poor stock price performance even before the announcement. Additionally, it was found that stock price performance for both the completed and the withdrawn offerings is poor after the announcement. Contrasting with prior research, the results show that firms complete their equity offerings, even though their stock price performance deteriorates. The fact that this deterioration is significantly smaller (approximately one‐third) than that of withdrawn offerings indicates that there is an acceptable level of deterioration that firms tolerate.

Originality/value

The paper evaluates short‐run stock price performance for a number of firms in the period 1984‐2000.

Details

Managerial Finance, vol. 32 no. 3
Type: Research Article
ISSN: 0307-4358

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Article
Publication date: 11 February 2014

Peixin Li and Baolian Wang

A significant number of Chinese companies are listed overseas. The authors aim to examine whether overseas locations affect their financing decision, specifically their…

Abstract

Purpose

A significant number of Chinese companies are listed overseas. The authors aim to examine whether overseas locations affect their financing decision, specifically their capital structure choice.

Design/methodology/approach

Most of the Chinese overseas listed companies are listed in the USA and Hong Kong. As the institutional quality of the USA is better than Hong Kong, the authors, therefore, choose to build the hypotheses from the “law and finance” literature. Specifically, the authors argue that the better institutional environment of the USA can mitigate the information asymmetry problem and the agency problem of financing via equity. Consequently, firms listed in the USA will rely more on equity and have lower leverage ratio. The difference in leverage ratio of US listed and Hong Kong listed companies should be larger when the marginal benefit of better information environment is larger.

Findings

Referring to various data sources, the authors construct a comprehensive list of overseas listed companies in the USA and Hong Kong. The authors collect the accounting and stock performance information from Datastream/Worldscope and the equity offering data from Global New Issue database. The empirical findings provide strong support of the hypotheses: the leverage is 15 percent lower for US listed companies than the Hong Kong listed companies; the results are stronger when the firms face more severe information asymmetry problem; the stock price reacts less negatively for seasoned equity offering in the USA than in Hong Kong.

Practical implications

Most of the Chinese companies decided to be listed overseas because they cannot be listed in the Mainland Chinese stock exchanges. One of the most important motivation is to access to external capital to support firm growth. As the main channel of external financing in the overseas markets is equity since debt is still mainly domestically based, one implication of this paper is that Chinese companies can gain better access to external capital in the USA than in Hong Kong and relax their financial constraint.

Originality/value

There are a considerable number of Chinese companies listed in the overseas markets. Many successful and famous companies are among them. However, almost no research has been done based on them. This paper documents some very important phenomenon of this market. The authors wish that more studies will be conducted. In addition, the study also complements the existing studies on how institutional environment affects corporate financial behavior.

Details

China Finance Review International, vol. 4 no. 1
Type: Research Article
ISSN: 2044-1398

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Article
Publication date: 7 August 2017

Christian Happ and Dirk Schiereck

This paper aims to analyze the effects on shareholder value caused by the announcement of seasoned equity offerings (SEOs) by real estate firms from 12 European countries.

Abstract

Purpose

This paper aims to analyze the effects on shareholder value caused by the announcement of seasoned equity offerings (SEOs) by real estate firms from 12 European countries.

Design/methodology/approach

A 4-factor model event study is conducted to assess the impact of SEO announcements on firm value. Additionally, a cross-sectional regression is run to identify factors that aggravate or mitigate the documented announcement effects.

Findings

Significant wealth losses of −1 per cent are found on the announcement day of an SEO. However, firms with good corporate governance and a low probability of overinvesting experience less negative announcement effects.

Research limitations/implications

The present study considers equity financing. In this context, investors seem to thoroughly assess the implications of capital increases by looking at quality indicators. For firms with good corporate governance, management incentivizing mechanisms and a lower probability of overinvesting, shareholders’ trust in the management mitigates the bad signal that the announcement of an SEO usually conveys.

Originality/value

The finding of corporate governance as a value enhancing factor in the context of equity offerings, even during periods of financial turmoil, is reassuring to both managers and regulators.

Details

Journal of European Real Estate Research, vol. 10 no. 2
Type: Research Article
ISSN: 1753-9269

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1 – 10 of over 2000