Seasoned Equity Offerings: Further Evidence from Australia

Abstract

While numerous empirical studies document significant long-run underperformance of seasoned equity offerings (SEOs) in different security markets, Allen and Soucik (2008, Mathematics and Computers in Simulation, 78(2–3), 146–154) argue that such an underperformance is dependent on the definition of ‘long-run’. They show that if ‘long-run’ is defined as 12 years instead of the usual 5 years, Australian SEOs seem to turn around their performance particularly during the sixth and seventh year, and the abnormal performance tends to disappear by the eighth year. This article reassesses whether the underperformance following SEOs is related to the length of the holding period. To facilitate direct comparison with the findings of Allen and Soucik, we use the same data and sample period as them. In addition, we propose a refined calendar time portfolio (CTP) methodology to investigate the long-term performance of Australian SEOs. To assess the robustness of our findings, the buy-and-hold abnormal return (BHAR) approach has also been employed to measure the long-run performance of SEO stocks. The empirical analysis reveals that SEOs underperform when the abnormal returns are estimated by employing the BHAR methodology. Our refined CTP approach, on the other hand, finds evidence of abnormal performance only for equally weighted portfolios.