Seasoned Equity Offerings Announcements Research Articles

Эффекты дополнительных размещений акций

Авторы: А Р Токтоналиев НИУ ВШЭ
 Елена Владимировна Чиркова НИУ ВШЭ
 В данной статье анализируются результаты исследований дополнительных размещений акций (seasoned equity offering, SEO). В ней освещаются широко известные феномены SEO, наблюдаемые в различных странах, такие как эффект объявления — отрицательная реакция цены акций на объявления о SEO, недооценка акций при SEO, долгосрочная доходность SEO.В статье приводятся данные относительно размера отрицательной реакции на объявление о SEO, изложены гипотезы, объясняющие данный эффект: отрицательного наклона кривой спроса на акции, структуры капитала, высоких трансакционных издержек размещения акций, информационная. Перечислены факторы, влияющие на величину избыточной доходности в день объявления: целевое использование средств, характер корпоративных новостей, объемы размещения и стадии экономических циклов. В статье проанализированы результаты исследований величины недооценки и их временной динамики и зависимости размера недооценки от различных факторов, таких как биржа листинга, репутация андеррайтера, а также описаны гипотезы, объясняющие феномен недооценки SEO: изменения профиля эмитента, «приятного послевкусия», коротких продаж, растущей власти инвестиционных банков. Авторами также рассмотрены исследования феномена пониженной доходности акций SEO в разных странах, изложены гипотезы причин ее существования: использования окон возможностей и проявление некорректно специфицированной модели.

The Role of Accounting Conservatism in the Equity Market: Evidence from Seasoned Equity Offerings

ABSTRACT Using seasoned equity offerings (SEOs) from 1989 to 2008, we examine the role of accounting conservatism in the equity market. We find that issuers with a greater degree of conservatism experience fewer negative market reactions to SEO announcements. We further show that an important mechanism through which conservatism affects SEO announcement returns is by mitigating the negative impact of information asymmetry. Additional analyses suggest that our results are not driven by the effects of other forms of corporate governance. We also find evidence that conservative issuers continue to use conservative accounting after the equity offerings. Taken together, our findings are consistent with the argument that accounting conservatism reduces financing costs in SEOs. Data Availability: Data used in this study are available from public sources identified in the study.

Information spillovers around seasoned equity offerings

We examine information spillovers in the context of seasoned equity offerings (SEOs). Rival firms react significantly positively (0.26%) to primary SEO announcements, indicative of a competitive effect, but negatively (−0.35%) to secondary share announcements, which is evidence of a contagion effect. Consistent with the view that primary equity offerings signal favorable industry prospects because firms presumably issue new shares to invest in profitable projects, we find that the rival response is positively related to analysts' EPS growth forecasts. However, when insiders are selling their shares through a secondary offer, this may suggest overvaluation and thus negatively impacts rival firms. Consistent with this view, we find when VCs sell through a secondary offerings, rivals experience a more significant negative reaction. We find rival firms are more likely to follow their peers and conduct a primary SEO if the market reacts favorably to their peer's SEO announcement. Finally, rival firms outperform secondary share issuers of equity, but not primary share issuers. Collectively, the findings support the view that insiders take advantage of windows of opportunity when they sell their own shares, but not when they raise capital for investing purposes.

Management Performance and Announcement Effect of Seasoned Equity Offering

This paper investigates whether the announcement effect of seasoned equity offering is affected by management performance. We used Korean stock market data from 2000 to 2007 to analyze the possible relation between net income and seasoned equity offerings announcement effect. The sample of 308 firms are selected for the study from the original population of 750 seasoned equity offering announcements. and We analysis this article through event studty of Brown and J.Warner. We divide the data into two groups. - the previous offerings year's positive net income group and negative income group. Both positive and negative net income samples affect stock price positively. However, the CAR for the negative net income offerings becomes zero around 25days after the announcement date. To analyze the impact of accounting income on the seasoned equity offering announcement effects fully, we introduce a cross-sectional regression analysis by setting the cumulative abnormal returns as a dependant variable and net income as an explanatory variable. The beta coefficient of the net income shows a statistical significance. These results can be considered as an evidence to support our hypothesis.

SEASONED EQUITY ISSUERS’ R&D INVESTMENTS: SIGNALING OR OVEROPTIMISM

AbstractIt is well known that investors often react negatively to the announcements of seasoned equity offerings (SEOs). We posit that issuers can use positive discretionary (higher than expected) R&D investments before the SEO to signal their investment prospects to mitigate the negative announcement effect. Alternatively, positive discretionary R&D may be attributed to managerial overoptimism about future returns of R&D investments. We find strong support for the signaling hypothesis among high‐tech issuers: investors respond more favorably to the SEO announcements of high‐tech issuers with positive discretionary R&D; these issuers are more likely to use new capital in future R&D and they produce better post‐SEO operating performance. In contrast, we find some evidence of managerial overoptimism among low‐tech issuers: investors tend to penalize low‐tech firms with positive discretionary R&D at SEO announcements; they are more likely to hold new capital as cash and they fail to produce better post‐SEO operating performance.

An agency theory explanation of SEO underperformance: Evidence from dual-class firms

Using a sample of U.S. dual class companies, we empirically investigate the effects of the divergence between insiders’ voting and cash flow rights on market reaction to seasoned equity offerings (SEOs) and long-run stock performance following SEOs. We find that SEO announcement returns and long-run stock performance following SEOs are negatively related to measures of the divergence between insiders’ voting and cash flow rights. Our results support the view of agency theory as a plausible explanation of SEO underperformance. Misalignment of interests between insiders and outside shareholders can create managerial incentives to undertake value-destroying investments to extract private benefits, ultimately leading to a reduction in firm value.

Valuation Effects of the Sarbanes-Oxley Act: Evidence from Seasoned Equity Offerings by Canadian Cross-Listed Firms

This paper examines the impact of the Sarbanes-Oxley Act of 2002(SOX) on the valuation of seasoned equity offerings (SEOs) by Canadian cross-listed firms in the U.S. It finds that the market reaction or abnormal return to SEO announcements of Canadian cross-listed firms is negative and highly significant for the post (-3.64%) compared to the pre (-1.25%) SOX period. Also, the determinants of the market reaction to SEO announcements are completely different between the pre- and post-SOX periods. The only reason that the market reaction is more negative post- compared to the pre-SOX period is for SEOs that are issued globally (mainly in the U.S.) (-5.35%) relative to those that are issued in Canada only (-2.73%). These results indicate that issuing equity globally has had a detrimental effect for Canadian cross-listing firms after the passage of SOX.

Corporate Governance and Investor Confidence in Seasoned Equity Offerings

We investigate how governance affects investor confidence in seasoned equity offerings (SEOs) and the cost of raising external equity. Using a differences-in-differences approach with business combination statutes as an external shock, we find investors become worried about non-productive use of SEO proceeds when the law change weakens external pressure for good governance. We buttress this finding by identifying a channel through which governance causes heterogeneous investor reaction to SEO announcements--increases in capital expenditures following SEOs. Also consistent with the governance based explanation, market reaction is more negative when issuers have prior records of value-reducing acquisitions and weaker alignment of managerial incentives to shareholder value. The magnitudes of these impacts are surprisingly large, explaining most of negative market reactions to primary offerings. Secondary offerings are met with strong negative reactions due to signaling effects; however, our data show no evidence in support of the adverse selection hypothesis.

Seasoned Equity Offerings by Dual-Class Firms

We compare shareholder wealth effects of Seasoned Equity Offerings (SEOs) conducted by dual and single-class firms between 1996 and 2007. While there is no difference in pre-issue stock performance or the initial market reaction to the SEO announcements, dual-class issuers significantly underperform single-class issuers in the post-issue years. The mean abnormal three-year underperformance of dual-class firms relative to single-class is a significant 13.81%, and is robust to alternative abnormal stock return methodologies. We also find dual-class issuers invest significantly less in capital expenditures and R&D over the post-issue period. In addition, higher levels of post-issue capital expenditures are associated with greater relative stock underperformance for dual-class issuers. Overall, these findings are inconsistent with dual-class SEOs increasing long-term shareholder wealth.

Short Selling Around Seasoned Equity Offerings

We use daily short-selling data to examine whether short selling around seasoned equity offerings (SEOs) reflects informed or manipulative trading. Around SEO announcements, we find no evidence of informed short selling. Around issue dates, higher levels of pre-issue short selling are significantly related to larger issue discounts for non-shelf-registered offerings. This evidence is consistent with manipulative trading. We show that SEC Rule 105 constrains some but not all manipulative trading. Our results reverse previous research that uses monthly short-interest data, because daily data allow more powerful tests. Our evidence helps explain the increased popularity of shelf registrations. Although short selling usually enhances price efficiency, we document a situation where short selling reduces price efficiency. The Author 2010. Published by Oxford University Press on behalf of The Society for Financial Studies. All rights reserved. For Permissions, please e-mail: journals.permissions@oxfordjournals.org., Oxford University Press.

Explanation for market response to seasoned equity offerings

In this paper, we use a multivariate framework to extend the recent univariate seasoned equity offering (SEO) research that investigated the valuation impact of inside ownership. Our multivariate findings re-enforce and add to the univariate findings as we show that the inside ownership level is a consistent factor in accounting for short-run and long-run returns around SEOs, while the decrease in inside ownership has no impact on short-run returns but influences long-run returns in a manner inconsistent with signaling theory. Compared to prior research, our regression tests do a much better job of accounting for returns associated with SEO announcements. For short-run regression tests, the four major factors associated with superior stock returns are: lower underpricing; greater profitability prior to SEO; lower inside ownership level; and, less stock price variability prior to SEO. For long-run regression tests, the four major conditions linked to superior returns are: greater profitability prior to SEO; smaller inside ownership level; relative size of the offering; and, greater decrease in inside ownership level.

What Drives Returns and Underpricing of Seasoned Equity Offerings in Taiwan?

We use over 200 firms in Taiwan to examine two issues: (1) how investors in Taiwan react to seasoned equity offerings (SEOs) when firms plan to make capital investments, and (2) factors driving the underwriting price of the stock offerings. Our results indicate that investors seem to have strong negative reactions to the SEOs announcement; they prefer alternative financings for firms with good profitability when they make capital investments. Several interesting results related to underpricing of SEOs are noted. First, larger firms and larger underwriters appear to have more underpricing. The number of underwriters will have a net positive effect on underpricing. Finally, the brokerage firm in comparing to the bank as the underwriter would yield a net positive effect on the underwriting price.

Seasoned equity offerings: Quality of accounting information and expected flotation costs

Flotation costs represent a significant loss of capital to firms and are positively related to information asymmetry between managers and outside investors. We measure a firm's information asymmetry by its accounting information quality based on two extensions of the Dechow and Dichev [2002. The quality of accruals and earnings: the role of accrual estimation errors. Accounting Review 77, 35–59] earnings accruals model, which is a more direct approach to assessing the information available to outside investors than the more commonly used proxies. Our main hypothesis is that poor accounting information quality raises uncertainty about a firm's financial condition for outside investors, though not necessarily for insiders. This accounting effect lowers demand for a firm's new equity, thereby raising underwriting costs and risk. Using a large sample of seasoned equity offerings (SEOs), we show that poor accounting information quality is associated with higher flotation costs in terms of larger underwriting fees, larger negative SEO announcement effects, and a higher probability of SEO withdrawals. These results are robust to joint determination of offer size and flotation cost components and to adjustments for sample selection bias.

Reaksi Investor terhadap Earnings Management

This paper examines investor reaction to earnings management around seasoned equity offerings (SEO) by companies listed on Indonesia Stock Exchange (IDX) in the period 2005-2007. Using Jones Model modified by Dechow (1995), this research found evidence of earnings management around seasoned equity offerings. Based on managerial response hypotesis, this research analyze whether SEO announcement signals earnings management to investor. Furthermore, this research also analize investor reaction on SEO announcement and financial report around SEO. The result shows that investor failed to recognize earnings management on financial report before SEO. However, this research does not found evidence that SEO signals earnings management conducted by firms to investor. Keywords:Â Â Â Earnings management, seasoned equity offerings, investor reaction, managerial response hypothesis

Short Selling Around Seasoned Equity Offerings

This paper uses daily short selling data to examine whether short selling around seasoned equity offerings (SEOs) reflects informed or manipulative trading strategies. We find no evidence of informed short selling around SEO announcements. Around issue dates, higher levels of pre-issue short selling are significantly related to larger issue discounts, consistent with manipulative trading. These results are significant only for the non-shelf registered offerings in our sample. We also directly test the effectiveness of SEC Rule 105, and find that it constrains some but not all manipulative trading. This research makes three main contributions to the literature. We are the first paper since the SEC implemented rules restricting such behavior to provide direct evidence that pre-issue short selling is associated with larger SEO discounts. Previous research using monthly short interest data rejects the manipulative trading hypothesis. Our results differ from prior research primarily because daily short selling data allow much more powerful tests. Second, our evidence that there is no manipulation around shelf offerings provides one possible explanation for the increased popularity of shelf registrations. Finally, although short selling usually enhances price efficiency, we document a situation where short selling makes prices less efficient.

Share Repurchases and the Need for External Finance

We investigate the relationship between the need for external finance and the information content of share repurchases. We find that share repurchase announcement returns increase in the likelihood the firm will need to raise equity in the future. We then examine whether announcement returns to seasoned equity offerings (SEOs) differ when an open market share repurchase precedes the SEO. We hypothesize that repurchases may reduce asymmetric information regarding firm value. In this case, the repurchase mitigates the adverse selection problem associated with issuing equity, and the abnormal return to the SEO announcement should be less negative. We find significantly less negative abnormal returns when the SEO is preceded by a repurchase announcement. We document less negative SEO announcement abnormal returns when the SEO and repurchase announcements are closer in time. We find that compared to other repurchase firms, repurchase firms that are more likely to issue equity have better investment opportunities, have less internally generated cash flow, and face more severe financial constraints. We conclude that payout policy, in the form of stock repurchases, plays a significant role in conveying information about firm value.

Do Stock Prices Underreact to Seo Announcements? Evidence from Seo Valuation

This paper examines whether the market underreacts to the negative information implicit in the SEO (seasoned equity offerings) announcements. While rational and mispricing theories both predict SEO's, in the aggregate, should earn low returns in the long run, they offer sharply different predictions for the cross-sectional relationship between pre-SEO valuation and long-run returns. We find that SEOs that are more overvalued (relative to their non-issuing industry peers) prior to the announcement day experience the same rate of decline in market value as SEOs that are less overvalued but experience a significantly larger decline over the subsequent five years. These results are consistent with the underreaction hypothesis and inconsistent with solely risk-based explanations. Our cross-sectional findings are robust to controlling for capital investments, expected growth rates, accruals, leverage, percentage shares issued in the SEO, pre-SEO price run-up, and B/M ratios. Additional tests indicate that overvalued SEOs earn lower returns around future quarterly earnings announcements and do not exhibit superior ex-post operating performance. We argue that both risk and mispricing theories are needed to fully understand the evolution of SEO fundamentals and stock prices over time.

Executive Compensation Structure and Corporate Equity Financing Decisions*

Extending Myers and Majluf's (1984) model, we propose the market response to seasoned equity offering (SEO) announcements depends on the alignment of goals of managers and existing shareholders. We document a negative relation between the stock‐market response to SEO announcements and issuing firm managers' equity‐based compensation (EC). Relative to low‐EC managers, the market perceives high‐EC managers as issuing more‐overvalued equity, benefiting existing shareholders and exacerbating the adverse selection problem for potential shareholders. We find EC and the market reaction to SEOs varies cross‐sectionally with information asymmetry, investment opportunities, preissue stock‐price run‐up, and managerial ownership.

Executive Compensation Structure and Corporate Equity Financing Decisions

Building on Myers and Majluf's (1984) model, we propose that the magnitude of the market response to seasoned equity offering (SEO) announcements depends on the degree of alignment between the goals of managers and existing shareholders. We document a negative relation between the stock market response to SEO announcements and equity-based compensation (EC) awarded to issuing firm managers. The evidence suggests that the market perceives high EC managers as issuing more-overvalued equity (relative to low EC managers), which benefits existing shareholders and exacerbates the adverse selection problem for potential new shareholders. The relation between EC and the market reaction to SEOs varies cross-sectionally with (a) information asymmetry, (b) investment opportunities, (c) pre-issue stock price run-up, and (d) managerial ownership. Our study highlights the importance of a cohesive executive compensation policy and corporate financing policy.

The Structure of Executive Compensation and Seasoned Equity Offering Announcements

The decision to announce a seasoned equity offering typically comes with a decline in firm value, as investors interpret this decision as a signal of poor financial health. This bad news signal is extenuated when investors are aware that managers' personal wealth is tied to that of the firm's performance. In this paper, we analyze the short-term and long-term market reaction to SEO announcements and the executives' link to firm value. The extent to which executive's personal wealth is tied to that of firm value is measured by the proportion of CEO equity-based compensation. Results support the hypothesis that as the proportion of CEO equity-based compensation increases, so does the credibility of the signal and the strength of the negative reaction to the announcement of SEOs.