Abstract
This article studies the stock price reaction to Seasoned Equity Offerings (SEOs) through the right issue technique, for Italian listed companies in the period between 2007 and 2016. A few days before the starting date of the capital increase operation, investors are provided with a complete information set of the final characteristics of the equity offerings. The study investigates whether this further information is price sensitive. An event study analysis is performed around two price sensitive dates: the “announcement date” of the equity issue and the “communication date” of its final characteristics. It also focuses on the reasons underlying the offer and on the industry effect. The findings show a significant negative abnormal return at the communication date for the full sample and for companies collecting financial resources for “Corporate Finance Transaction”, for "Capital Adequacy" and for “Restructuring”. A negative market reaction for all sectors is observed as well. Eventually, the article examines the possible causes underlying the negative stock price reaction at the communication date. The results suggest that the dilutive effect is the main explanation to the stock price overreaction.
Highlights
The stock price reaction to Seasoned Equity Offerings (SEOs) has been studied by the researchers for several years providing the financial community with Signaling, Agency, and Adverse Selection theories
We show the results of the regression analysis aimed at investigating the possible causes underlying the highly negative CARs observed at the communication date compared to the one observed at the announcement date
We study the stock price reaction to Seasoned Equity Offerings (SEOs) through the right issue technique for Italian listed companies in the period between 2007 and 2016
Summary
The stock price reaction to Seasoned Equity Offerings (SEOs) has been studied by the researchers for several years providing the financial community with Signaling, Agency, and Adverse Selection theories. Several studies have been focused on the negative stock price reaction to the news of a capital increase to investigate the magnitude and the reasons underlying. Most of them have been concentrated only on the US market, where capital increases occur mostly through the public offer technique, excluding the right issue option, getting to few studies about the market reaction through the right issue technique. De Vito et al (1991), Bigelli (1996) and Bolognesi and Gallo (2013) are three of the main studies focused on the Italian context. Especially for Italian banks, the regulation has imposed new stricter capital requirements, leading them to carry out numerous capital increases during the crisis
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