Abstract
This study investigates whether firms' lottery-like characteristics (low price, great idiosyncratic volatility, and high skewness) affect institutions' participation in share allocation around seasoned equity offerings (SEOs) and firms' post-issue long-run performance. The results show that the level of institutional ownership of lottery-like firms is lower than non-lottery-like firms, but these lottery-like firms attract more new institutions to purchase SEO shares. When this study controls for related factors (e.g., changes in institutional ownership and systematic risk), lottery-like characteristics negatively associate with issuers' long-run performance. These results indicate that those lottery-like firms that institutions favor are able to improve their performance after SEOs but still underperform non-lottery-like firms. This result implies that many institutional investors are overoptimistic about the investment opportunities of lottery-like firms.
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