Do the Use of Proceeds Disclosure and Bank Characteristics Affect Bank Underwriters’ Certification Roles?

Abstract

This paper examines the relationship between the intended use‐of‐proceeds and the bank characteristics and the bank underwriters’ certification effect in Japan. We find that the bank underwriters are positively associated with the announcement return and the post‐issue performance. However, if an issuer discloses that the intended use‐of‐proceeds is the repayment of loans, the bank underwriters are no longer associated with the announcement return and the post‐issue performance. We also find that the banks’ equity holdings are negatively associated with the announcement return. We conclude that the bank certification effect differs depending on the disclosed intended use‐of‐proceeds and the bank characteristics.

Intended Use of Proceeds, Underwriter Quality and the Long‐run Performance of SEOs in the UK

“…In Japan, Suzuki and Yamada () examine whether the underwriter type and the intent to use the proceeds to repay loans predict SEO performance. They argue that the certification effect is stronger when underwriters have a lending relationship with the issuer.…”

Market Reaction to Seasoned Offerings in China

“…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.…”