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Previous research documents significant abnormal net selling by insiders prior to seasoned equity offering announcements. This study documents that the abnormal net selling is significantly greater for growth firms than for mature firms. It also shows that growth firms experience poorer post-issue long-term price performance, which suggests greater overpricing for growth firms. Further analysis shows that greater insider selling prior to the offering announcement is associated with a greater price run-up prior to the announcement and is not associated with a more negative market reaction to the announcement. Overall, the results suggest that investors may be overly optimistic about future prospects of growth firms. Copyright Blackwell Publishers Ltd 1999.

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<p class="MsoNormal" style="text-align: justify; margin: 0in 0.5in 0pt;"><span style="mso-bidi-font-style: italic;"><span style="font-size: x-small;"><span style="font-family: Batang;">This study compares characteristics of firms using the private placement method of issuing common stock with those using the public offering method.<span style="mso-spacerun: yes;">&nbsp; </span>Results show that private placement firms are smaller in size, have more growth opportunities, and have less financial slack than public offering firms.<span style="mso-spacerun: yes;">&nbsp; </span>Their issuance decisions are likely to be driven by their needs for external capital, rather than motivated by overvaluation of their stocks.<span style="mso-spacerun: yes;">&nbsp; </span>These findings are consistent with the information hypothesis, which states that undervalued firms with favorable prospects and little financial slack use the private placement method to resolve the information asymmetry problem when seeking external equity capital.<span style="mso-spacerun: yes;">&nbsp; </span></span></span></span></p>