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This paper examines secondary equity offerings that were done in the Canadian markets through “installment receipts” (IRs). Previous studies on seasoned equity offerings tend to focus on the price reaction around the announcement date. We extend the analysis to cover a longer period so that the issues of liquidity effect and information asymmetry can be adequately addressed. We also offer evidence to indicate that the use of IRs in secondary offerings can reduce the liquidity impact in markets where market depth is not as substantial as in the U.S.

The purpose of this paper is to contribute to the literature on secondary equity offerings (SEOs) by examining the impact of the Black Economic Empowerment (BEE) policy on secondary equity offering (SEO) pricing dynamics of South African Real Estate Investment Trusts (REITs).

With a sample of 152 SEOs of South African REITs from 2010 to 2020, ordinary least squares (OLS) models, fixed effect models, parametric and non-parametric tests were applied to test for the impact of BEE on the underpricing of SEOs.

Significant underpricing is discovered in highly compliant (BEE) REITs; in other words, SEOs pricing of BEE compliant REITs are more underpriced compared to non-compliant BEE REITs. With this, BEE compliant REITs and more so, highly compliant BEE REITs in particular leave more money on the table.

The government is therefore aware of the impact policy interventions play when REITs raise financing through SEOS. With these, highly compliant BEE REITs will need to be more strategic when making BEE compliance decisions as this is shown in our study to impact the underpricing of SEOs.

This is the first study to investigate SEO underpricing for the BEE policy using the South African REITs context.

This case was researched using publicly available sources, including Mercury Systems financial filings and press releases, news stories about the seasoned equity offering, financial information from Bloomberg and industry information from IBISWorld Industry Reports and articles related to seasoned/secondary equity offerings, intangible asset valuation and the use of revolving lines of credit. Quotes are taken from Mercury financial reports and press releases and express the (optimistic) opinions of company executives.

Mercury Systems, a technology company in the aerospace and defense industry, announced a six million share seasoned stock offering in June 2019. This resulted in a 6% stock price decrease. A stock price decrease is a typical event when a firm announces the issuance of new common shares, but with Mercury Systems, there were concerns about how much money the firm needed to fund its strategy of growth through acquisitions. If internally generated funds were not sufficient, should the firm issue debt or have another seasoned equity issue? Students will look at the objectives and success of the most recent seasoned equity issue, determine future funds needs and how the firm should finance these needs.

This case is appropriate for undergraduate and graduate students in corporate finance electives. Typically, topics such as seasoned equity offerings are not covered in introductory courses, so this is recommended for finance electives. Even in advanced finance courses, sometimes there is insufficient time to cover seasoned equity offerings.

Opinions have been divided on whether there is a rational explanation to the reason behind seasoned equity offerings (SEOs) or whether the explanation lies within the behavioural intricacies attributed to stock market participants. The paper aims to discuss these issues.

This study investigates the long-run performance of firms conducting SEOs on the Johannesburg Stock Exchange (JSE) over the period of 1998–2015, by examining the return performance and operating performance of firms, along with the impact of investor sentiment on these variables.

The results of this study are inconsistent with the existing literature, which argues that the long-run performance of issuing firms signalled an initial underreaction to SEOs buoyed by over-optimistic investors.

Instead, the long-run performance of issuing firms is adequately explained by the rational models centred on the risk-return framework, implying that investors are reacting swiftly to SEOs in an unbiased fashion.

Investor sentiment does not materially influence the long-run share performance or operating performance of issuing firms, casting doubt on the ability of the market timing theory to explain the long-run performance of SEOs. The authors thus find that SEO performance cannot be explained by behavioural-based reasoning, in contrast to some asset pricing studies on the JSE which indicate the role of sentiment in explaining returns.

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.

Firms are concerned about earnings per share (EPS) dilution after equity issues. The purpose of this paper is to investigate whether firms manage upward their discretionary accruals around seasoned equity offerings (SEOs) to mitigate the impact of dilution on reported earnings.

The authors employ adjusted discretionary accruals from cash flow statements, normalized by the average common equity, in the multivariate tests.

There is evidence that SEO‐year discretionary accruals are the highest when contemporaneous operating cash flows are the lowest. Moreover, managers react to temporary rather than permanent declines in operating performance. Firms with the highest SEO‐year discretionary accruals experience the strongest improvements in post‐SEO operating cash flows. In addition, investors are not misled by the SEO‐year earnings management. There is no relation between the SEO‐year discretionary accruals and post‐SEO stock performance. Overall, these findings are consistent with the hypothesis that firms manage discretionary accruals around SEOs to mitigate the effect of temporary EPS dilution.

The paper's findings suggest that firms manage discretionary accruals during the SEO year to reduce the temporary negative impact of SEOs on operating performance measures, consistent with the EPS dilution hypothesis. Such earnings management makes earnings smoother and more predictable, improving earnings informativeness. The findings also suggest that misleading earnings management is not a common practice during the SEO year.

This paper adds to the literature questioning the evidence that managers frequently engage in misleading earnings management around corporate events. The authors provide an alternative explanation for earnings management around SEOs.

This is the first REIT paper to seek to empirically examine potential influencing factors on the discounts and underwriting fees of Australian REIT rights issues.

Using a methodology similar to Owen and Suchard, and Armitage, a sample of 62 A‐REIT rights issues during 2001‐2009 is analyzed. A variety of potential factors influencing discounts and underwriting fees are explored.

Over A$20 billion was raised by A‐REIT rights issues during 2001‐2009 (this around three times that raised through A‐REIT initial public offerings during the same period). The mean offer price was discounted around 9.5 percent from the current market price and underwriting fees averaged 2.9 percent of gross proceeds raised – both substantially less than for industrial rights issues. The standard deviation of daily returns for the past year appears to influence the percentage discount offered to subscribers. This volatility was particularly noticeable in 2008 and 2009, during the global financial crisis, where new issues were discounted substantially so as to raise equity to repay debt. This historical risk variable appears paramount in determining the discounts to subscribers and fees to underwriters.

A‐REITs seeking to minimize the discounts offered to subscribers and to minimize their underwriting costs with rights issue equity capital raisings must first minimize their share price volatility.

This paper adds to the international costs of capital raising literature of REITs by examining such costs with A‐REIT rights issues and is the first paper to examine factors influencing these costs.

Groupon, an online coupon company, was one of many companies that considered an initial public offering (IPO) during what might be a second technology/internet/social media IPO boom in 2011. Some companies chose to postpone their IPOs, while others took advantage of the media attention focussed on technology companies, and in particular, social media firms. Should investors hop on the tech IPO bandwagon, or hold off to better evaluate the long-term prospects of tech companies, and in particular social media companies? Would the valuation of Groupon justify an investment in IPO shares?

The case was researched from secondary sources, using Groupon's IPO filing information, news articles about the IPO and industry research sources, such as IBIS World.

This case is appropriate for an advanced undergraduate or MBA corporate finance or investment elective. Most introductory finance classes do not have the time to cover later chapters in a finance textbook, where information about IPOs is generally found. It could also be used at the end of a core finance course, where the instructor wanted to introduce this topic through a case study of a hard-to-value internet-based company to illustrate the difficulties in setting IPO prices. The case could also be used in an equity analysis class, an entrepreneurial finance class or an investment class, to spur discussion about valuing an internet company and choosing appropriate investments for pension fund investing. This case could also be used in a strategy class, focussing on the five forces question, and eliminating the valuation question.

There is a great deal of literature about IPOs and their long-term performance. An excellent source is Jay R. Ritter's research, http://bear.warrington.ufl.edu/ritter, which has a longer time period and more data than could be contained in this case. IPO puzzles include persistent undervaluing of IPOs; in other words, the offer price is lower than, and sometimes substantially lower than, the first day close price. A second issue is the generally poorer long-run performance of companies after their IPO when compared to similar firms that did not do an IPO.

This paper aims to analyse the causes and impact of the significant mean price discounts (25 per cent for financial and 29 per cent for non-financial firms) in rights issues in the UK using a sample of 268 observations for the period of 1994 to 2012. It is observed that for non-financial companies, the issue terms announcement returns are negatively affected by the discount size, while firm size, growth prospects and good previous stock performance have a positive impact. It is also investigated which factors seem to influence managers to engage in deeper discounts when these are so disliked by investors. Evidence is provided that firms with more leverage, larger bid-ask spreads or suffering losses tend to choose deeper discounts. The authors conclude that managers balance the expected negative reaction of the market to a price discount with the risks of a costly issue failure, with these being higher when the firm experiences losses, has a higher volatility and also when the stock market climate is more adverse.

The analysis is divided in two stages. In a first step (thereafter pre-announcement), the authors evaluate the firm’s and market conditions that determine the price discount. In a second stage (post-announcement), the authors measure the market reaction to the rights issues announcement by calculating the abnormal announcement returns by cumulating the difference between daily returns (R) and expected market returns (ER) for the period of −2 to 2 relative to the announcement day.

The authors document that price discounts in right issues for non-financial and financial firms are determined by a set of firm-characteristics and market sentiment. They also bring evidence that price discounts are not arbitrarily determined by firm managers.

The results are consistent with the idea that despite the negative signal to investors conveyed by a significant price discount in the new shares, managers of non-financial companies still engage in substantially price-cutting.