Seasoned equity offerings and corporate governance in Europe

Abstract

Purpose This paper aims to analyze the effects on shareholder value caused by the announcement of seasoned equity offerings (SEOs) by real estate firms from 12 European countries. Design/methodology/approach A 4-factor model event study is conducted to assess the impact of SEO announcements on firm value. Additionally, a cross-sectional regression is run to identify factors that aggravate or mitigate the documented announcement effects. Findings Significant wealth losses of −1 per cent are found on the announcement day of an SEO. However, firms with good corporate governance and a low probability of overinvesting experience less negative announcement effects. Research limitations/implications The present study considers equity financing. In this context, investors seem to thoroughly assess the implications of capital increases by looking at quality indicators. For firms with good corporate governance, management incentivizing mechanisms and a lower probability of overinvesting, shareholders’ trust in the management mitigates the bad signal that the announcement of an SEO usually conveys. Originality/value The finding of corporate governance as a value enhancing factor in the context of equity offerings, even during periods of financial turmoil, is reassuring to both managers and regulators.

Private Placement of China-Listed Real Estate Firms: A Conceptual Idea

“…(Baek et al 2006;Kato and Schallheim 1993). Happ and Schiereck (2017) found a similar pattern in European real estate companies. It had relatively small capital, on average and median, compared to other SEOs.…”

“…The most idiosyncratic characteristic of SEOs is the negative announcement effect in various nations and industries (e.g., Veld et al (2020) 4 for various markets; Eckbo and Masulis (1992) in the US; Hansen (1988) in the right issue; Happ and Schiereck (2017) in the European real estate industry; and Tan et al (2002) in Singapore) because the market interpretation the SEOs as a signal that the stock price is overvalued (Myers and Majluf 1984).…”

“…Katti et al (2020) found larger issues are positively associated with firm size, which has a lower level of information asymmetry. The low negotiation costs of the private placement, combined with management's decision to avoid a public offering, indicate the market management's perception that the company is undervalued (Happ and Schiereck 2017). Some scholars believe the high levels of asymmetry information are the main reason to choose private placements rather than SEOs (Chemmanur and Fulghieri 1999;Chen et al 2010;Gomes and Phillips 2004;Schultz and Twite 2016;D.…”

“…In the real estate Industry, Louisiana et al (2007) observed a negative announcement effect in the case of private placements of REITs in the United States. Happ and Schiereck (2017) similarly noted a negative announcement effect when examining Seasoned Equity Offerings (SEOs) in 12 European real estate markets (which differ from the US market, as they are not as heavily dominated by REITs), although they did not distinguish between deals executed through private placement. However, X.…”