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Explanation for market response to seasoned equity offerings

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Abstract

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.

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Authors and Affiliations

  1. School of Business, Washburn University, 1700 SW College Avenue, Topeka, KS, 66621, USA

    Robert M. Hull, Sungkyu Kwak & Rosemary L. Walker

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  1. Robert M. Hull
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  2. Sungkyu Kwak
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  3. Rosemary L. Walker
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Correspondence to Robert M. Hull.

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Hull, R.M., Kwak, S. & Walker, R.L. Explanation for market response to seasoned equity offerings. J Econ Finan 36, 634–661 (2012). https://doi.org/10.1007/s12197-010-9139-6

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  • DOI: https://doi.org/10.1007/s12197-010-9139-6

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