The Long-run Performance of Seasoned Equity Offerings with Rights: Evidence from the Swiss Market

Abstract

We examine the long-run performance of firms that offers seasoned equity on the Swiss market. Swiss firms use offerings with rights to raise new equity and they can issue three types of securities. Moreover, the tax law has for some firms the effect of increasing the issuing frequency. We find that most SEOs are small as a percentage of the firm's market capitalisation. The leverage ratios change often (up and down) during a thee-period post-SEO horizon. The long-run abnormal returns are insignificant relative to size and book-to-market matching portfolios. These findings are corroborated by the fact that a portfolio of issuing firms do not exhibit a risk adjusted (Fama and French 3-factor model and Time-varying beta) abnormal performance. The results are in accordance with the growing literature showing that the US SEOs do no more have abnormal negative performance. Finally, we show that Swiss firms have an incentive to use SEOs as a substitute for stock dividends. This particular feature helps to explain the high frequency of SEOs in Switzerland before 1992.