Abstract
We study the relation between bank regulation stringency and announcement effects of seasoned equity offerings across 21 countries. Under a low to moderate bank regulation environment, the market reacts more positively to the bank SEO announcements for an increase in the level of bank regulation. However, the bank SEO announcement effects become more negative if the bank regulation becomes too stringent. This inverted U-shaped relation is robust after we use the exogenous cross-country and cross-year variation in the timing of the Basel II adoption as an instrument to assess the causal impact of bank regulation on SEO announcement effects. Bank regulation has no significant impact of SEO announcement effects if the equity offering is involuntary.
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