Are the Discounts in Seasoned Equity Offers Due to Inelastic Demand?

Armitage, Seth; Dionysiou, Dionysia; Gonzalez, Angelica

doi:10.1111/jbfa.12074

Cited by 12 publications

(15 citation statements)

References 69 publications

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“…Empirical evidence on price effects of equity issues was seminally analysed by Loughran and Ritter (1995) and Spiess and Affleck-Graves (1995). Subsequently, a number of other studies have extensively examined mature markets such as the US (Gao and Ritter, 2010;Henry and Koski, 2010;Alti and Sulaeman, 2012;and Bradley and Yuan, 2013), the UK (Slovin et al, 2000;Capstaff and Fletcher, 2011;Iqbal et al, 2013;Armitage et al, 2014;and Silva and Bilinski, 2015), France (Ginglinger et al, 2012), Spain (Martín-Ugedo, 2003;and Alvarez and Gonzalez, 2005), Japan (Suzuki and Yamada, 2012), Australia (Lamberto and Rath, 2010), and others. Most of the recent studies in this area of research have been encouraged to a large extent by the increased interest in equity issues worldwide.…”

Section: Introductionmentioning

confidence: 99%

Market Reaction to Seasoned Offerings in China

Liu¹,

Akbar²,

Shah³

et al. 2016

Business Fin & Account

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This study examines stock market reaction to the announcement of various forms of seasoned issues in China. Our empirical evidence demonstrates that market reactions differ in ways that suggest a difference between management's internal assessment and the market's assessment of the stock price. The market responds unfavourably to the announcement, notably in the case of rights issues and also with regard to open offers. Private placements experience an unfavourable pre-announcement reaction, which contrasts with the favourable reaction after the event. Convertible bond issues generate positive excess returns consistent with the market's confidence that they can help to align management and shareholders' interests. Further investigation shows that market reaction is related to factors specific to the issuer and issue by reference to the period immediately surrounding the issue. Specifically, ownership concentration, agency matters connected with equity offerings, investor protection connected with fund allocation and security pricing, and the influence of powerful moneyed interests together provide an instructive insight into market reaction. Institutional inefficiency pertaining to underwriting, auditing, analysts' forecasts and credit ratings are found to have a weak association with market price, consistent with due public scepticism concerning management and their gatekeepers.

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Section: Introductionmentioning

confidence: 99%

Market Reaction to Seasoned Offerings in China

Liu¹,

Akbar²,

Shah³

et al. 2016

Business Fin & Account

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“…Credit rating agencies play an important role in alleviating information asymmetry in financial markets. In this article, I contribute to the results of Butler, Grullon, and Weston (2005), An and Chan (2008), Masulis (2009), andArmitage, Dionysiou, andGonzalez (2014) by examining the extent to which a firms choice to obtain a credit rating before issuing an SEO reduces the investment banking costs associated with the issue. whose new credit rating falls into the investment-grade or speculative-grade category, respectively, and 0 otherwise.…”

Section: Discussionmentioning

confidence: 99%

“…Lee and Masulis (2009) confirm this result, showing that poor accounting information quality increases investor uncertainty about a firm and lowers the demand for its equity, thereby increasing underwriting costs. Armitage, Dionysiou, and Gonzalez (2014) study the role that inelastic demand, or illiquidity, plays in SEO underpricing. The authors provide evidence that inelastic demand, or illiquidity, is a primary determinant of SEO underpricing.…”

Section: Information Asymmetry and The Costs Of Issuing Equitymentioning

confidence: 99%

Credit Ratings and the Cost of Issuing Seasoned Equity

McBrayer

2019

J of Financial Research

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I examine the effects of issuer credit ratings on the costs associated with seasoned equity offerings (SEOs). The evidence from a panel of SEOs from 1990 to 2014 shows that when firms issue seasoned equity, those with issuer credit ratings pay reduced investment banking fees. I confirm these results by conducting a propensity‐score matched‐sample comparison analysis of firms that obtain new, long‐term issuer credit ratings with an unrated control group. Controlling for known determinants of SEO fees, I find that firms that obtain a new credit rating before issuing seasoned equity pay significantly reduced investment banking fees. In economic terms, underwriting fees for newly rated firms are 7.2% lower than those for similar, yet unrated firms. Finally, I examine the indirect costs of issuance and find evidence that credit‐rated firms face reduced market‐based costs to issue. Rated firms incur lower dilutionary costs to issue and have more positive abnormal returns surrounding the issue.

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“…Given that market usually consider SEO as a bad signal on firm value and previous studies document an average negative market reaction around SEO announcements (e.g. Barnes and Walker, ; Bradley and Yuan, ; Armitage et al ., ), we propose that media coverage during the pre‐SEO period is negatively related to SEO announcement returns .…”

Section: Theoretical Background Related Literature and Hypothesesmentioning

confidence: 96%

“…The price discounts and the adverse price reactions of SEOs reflect the implicit costs for the issuing firms (e.g. Barnes and Walker, ; Armitage et al ., ). One way to reduce such costs is to enhance the efficiency of information dissemination to the investors.…”

Section: Introductionmentioning

confidence: 97%

Influence of media coverage and sentiment on seasoned equity offerings

Sun

Zhou

Wang

et al. 2018

Accounting & Finance

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Are the Discounts in Seasoned Equity Offers Due to Inelastic Demand?

Cited by 12 publications

References 69 publications

Market Reaction to Seasoned Offerings in China

Market Reaction to Seasoned Offerings in China

Credit Ratings and the Cost of Issuing Seasoned Equity

Influence of media coverage and sentiment on seasoned equity offerings

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