The capital supply channel in peer effects: The case of SEOs

Abstract

We document a capital supply channel in peer effects, for the case of SEOs. Firms accelerate their SEOs – they have higher SEO hazards – when more of their peers conducted an SEO within the prior six months. The effect is stronger among older yet constrained firms than among younger yet unconstrained firms. It is also stronger after Russell index shocks that likely reduce indexer demand for a firm's equity. We document evidence of a potential underlying mechanism; information conveyed by underwriters that recently marketed SEOs of peers, thus reducing asymmetric information costs.