Seasoned equity offerings, return of capital and agency problem: Empirical evidence from Taiwan

Abstract

Seasoned equity offerings (SEOs) and return of capital (ROC) are activities carried out by listed companies in the capital market. The decision of the company manager to engage in SEOs and ROC is actually in the scope of the agency mechanism. This paper explores the characteristics of SEO and ROC companies and whether SEOs and ROC will affect the company's performance and whether the agency problem will (partially) mediate the impact of SEOs and ROC on company performance. We use the annual data of domestic (Taiwan) listed companies from the Financial Supervisory Commission website and the Taiwan Economic Journal for the 2000–2018 period and adopt the Fama-French three-factor asset pricing model to hierarchical regression analysis to study the mediating role of the agency problem. The empirical results support that SEO companies are mostly in the expansion or growth stage and SEOs reduce company performance, both in the short term and long term. After considering free cash flow, the effect of SEOs on performance declines. The results support that ROC companies are mostly in decline stage and ROC increases long-term company performance. However, free cash flow does not affect the performance of the companies engaging in ROC. This research combines SEO and ROC data, and it is based on the perspective of the agency problem so that we can understand the impact on company performance.