Abstract
In this paper we aim to better understand the behavior of banks and the cost of bank recapitalization during crises. To do so, we study the announcement effect of 124 seasoned equity offerings (SEOs) by 66 listed banks from 20 European Union (EU) countries during the 2006–2016 period. Opposite to what has been observed for non-banks, where rights issues mitigate investors’ adverse selection concerns and wealth transfers for non-participating shareholders, we find that, for SEOs announced by banks during periods of crisis, the abnormal stock returns following the announcement of a rights issue are significantly more negative than for a public offering. More specifically, we find relatively more negative abnormal returns for rights issues of lower relative size, and for issues by larger and less capitalized banks. The same holds for rights issues in countries with relatively higher institutional quality, weaker and less profitable banks, lower restrictions on non-traditional banking activities, and higher bank competition.
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