The Effect of Demand for Shares on the Timing and Underpricing of Seasoned Equity Offers

Intintoli, Vincent; Jategaonkar, Shrikant P.; Kahle, Kathleen M.

doi:10.1111/fima.12020

Cited by 15 publications

(15 citation statements)

References 57 publications

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“…Recently, several studies have discussed issuers with multiple equity issuances. This stream of literature find that investors react less negatively to subsequent issuances because of reputation built up and less information asymmetries (D'Mello et al, 2003;Intintoli et al, 2014;Walker et al, 2016). We believe that there is another factor that affects managers' earnings management decisions considerably but which is omitted by prior literature: the firms' need for subsequent equity issuance.…”

Section: Introductionmentioning

confidence: 81%

“…Prior literature shows that a significant proportion of firms do issue equity multiple times [1] and that the subsequent equity issuances normally receive more positive market pricing (D'Mello et al, 2003;Shu and Chiang, 2014;Hao, 2014;Intintoli et al, 2014;Walker et al, 2016). Collectively, these results suggest that the subsequent equity issuances are important parts of the firm's long-term equity issuance strategy.…”

Section: Introductionmentioning

confidence: 90%

“…To address this issue, we include the capital expenditure (CAP) to control for the possible biases in accrual estimation due to such changes. Intintoli et al (2014) and Hao (2014) find that the likelihood of issuing a follow-on SEO is significantly affected by the institutional ownerships involved. The literature on internal control also shows that institutional ownership serves as a major governance mechanism and serves to restrain earnings management around equity issuance (Kim et al, 2016;Lee and Masulis, 2011).…”

Section: Empirical Modelsmentioning

confidence: 99%

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The effect of the need for subsequent seasoned equity offerings on earnings management motivation

Wang

Hagigi

2019

RAF

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Purpose Most prior literature focuses on how managers’ immediate needs affect their current earnings management. The purpose of this paper is to expand this body of literature by investigating the managerial motivation in a multi-period setting. The authors believe that managers’ incentive to engage in earning management around current equity issues is not only determined by the companies’ immediate need, but that it is also determined by their longer-term financing need. Design/methodology/approach The authors examine all issuances of common stock, whether they are issued as seasoned equity offerings or whether as a reissuance of previously repurchased stock. They believe that the motivations for earnings management are similar for all these various stock-issuance events, which result in an increase in the number of outstanding common stock items. Findings The results of this paper reveal that those firms with less of a need for subsequent equity issuances are more likely to engage in “income- increasing” earnings management before their equity issuances. Conversely, equity issuers with more of a need for subsequent equity issuances would be more concerned about the potential impact of current earnings management on their future reported earnings and, therefore, would be less likely to manage earnings. Originality/value This paper contributes to the literature by extending the findings of the prior literature, showing that managerial discretion does not only affect the total magnitude of earnings management, but that it also impacts the timing of the earnings management activities. Insights gained from our research may contribute to the literature and enable a better understanding of firms’ financial reporting strategy from a longer-run view.

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Section: Introductionmentioning

confidence: 81%

Section: Introductionmentioning

confidence: 90%

Section: Empirical Modelsmentioning

confidence: 99%

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The effect of the need for subsequent seasoned equity offerings on earnings management motivation

Wang

Hagigi

2019

RAF

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“…Hypothesis 1 holds that VC‐backed firms are likely to issue quick SEOs. Firms with quick SEOs are usually smaller, more sensitive to price pressures, and highly volatile, and have fewer analysts following up, which leads to high information asymmetry (Intintoli and Kahle, 2010; Intintoli et al ., 2014). Therefore, due to high information asymmetry, we hypothesize that quick SEOs have high initial‐day returns.…”

Section: Institutional Background and Hypothesis Developmentmentioning

confidence: 99%

“…Following Intintoli et al . (2014), we measure information asymmetry using stock return volatility within 30 days after the SEO.…”

Section: Datamentioning

confidence: 99%

Venture Capital Backing and Issuance of Seasoned Equity Offerings: Evidence from China*

Yang

et al. 2020

Asia-Pac J of Fin Stud

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We analyze how venture capital (VC) affects the timing of seasoned equity offering (SEO) issuance and the post‐SEO performance of Chinese companies during the 2006–2018 period. Empirical analysis confirms that VC “accelerates” SEO issuance because of greater financing demands. Thus, VC‐backed firms prefer to issue their first SEOs earlier than non‐VC‐backed firms. Moreover, quick SEOs promoted by venture capitalists are more underpriced because of information asymmetry.

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Capital structure adjustment and market reaction following seasoned equity offerings

et al. 2019

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This paper analyzes the market reaction towards capital structure adjustment through seasoned equity offerings in the United States. It recognizes that capital structure and equity mispricing are closely associated with seasoned equity offering. We specifically propose that if the trade‐off theory holds and firms follow target capital structures, then, firms that are overlevered would effectively exploit an overvalued equity in a cost‐effective adjustment of their capital structures through seasoned equity offerings. We also test how the market then reacts to such capital structure adjustment attempts. Controlling for other motives of seasoned equity offerings in a sample of 1,725 secondary issues by 1,016 U.S. nonfinancial firms from 2004 to 2013, we found that firms that were ex ante overlevered and overvalued were more likely to announce a seasoned equity offering. As regards the market reaction to such capital structure adjustments, it is found that the market favorably reacted in both the short term and long term, as evidenced by positive 3‐day cumulative abnormal returns and buy‐and‐hold abnormal returns, respectively. Moreover, post‐event evidence suggests that on the average, overlevered firms reduced their deviations from the target and that their leverage levels mainly stayed around the targets until at least 3 years after the secondary equity issues.

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The Effect of Demand for Shares on the Timing and Underpricing of Seasoned Equity Offers

Cited by 15 publications

References 57 publications

The effect of the need for subsequent seasoned equity offerings on earnings management motivation

The effect of the need for subsequent seasoned equity offerings on earnings management motivation

Venture Capital Backing and Issuance of Seasoned Equity Offerings: Evidence from China*

Capital structure adjustment and market reaction following seasoned equity offerings

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