Abstract
We document a strong link between institutional investors and long-run stock return and operating performance following seasoned equity offerings (SEOs). Virtually all of the underperformance is confined to the top two quintiles of stocks with the largest increase in number of institutional investors prior to the post-issue underperformance. Moreover, non-SEO stocks with matching changes in institutional investors exhibit similar long-run underperformance to that of SEO stocks. Thus, we conclude that post-SEO underperformance is not due to the SEO per se but rather is a manifestation of more general effects associated with changes in institutional interest in a firm’s stock.
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