The role of internal and external certification mechanisms in seasoned equity offerings

Abstract

When conducting their seasoned equity offerings (SEOs), US firms have been increasingly relying on shelf offering or accelerated offering rather than non-shelf offering or traditional book building, the predominant issuance methods in the past. Previous studies find that the unpopularity of shelf or accelerated offering in the past is due to the under-certification problem.Therefore, the change in firms' preferred issuance methods suggests that firms must have obtained adequate certification through various ways. In this paper, we study several potential internal and external certification mechanisms that issuers can utilize and explore their roles in the SEO process. We find that the internal certification via sound corporate governance affects firms' choice of the issuance method between shelf (accelerated) and nonshelf (non-accelerated) offerings, while the external certification through acquiring high-quality auditing services impacts the issuance costs.JEL classification: G14, G24, G32

Does managerial ability matter for the choice of seasoned equity offerings?

“…The accelerated SEOs process is completed in 1 day, as compared to 31 days for fully marketed or firm commitment offerings. Accelerated offerings increase competition between underwriters and place additional pressures on them to do their due diligence investigations more thoroughly, due to the restricted time process (Koerniadi and Tourani-Rad, 2015). This time constraint could potentially increase the cost of investigations and, hence, the signaling role of leadership skills becomes increasingly crucial.…”

Does Annual Report Readability Influence the Design of Seos?

“…Finally, we contribute to the growing body of knowledge about the drivers of SEOs in the literature. Prior research has identified internal certification through corporate governance (Koerniadi et al, 2015), managerial ability (Puwanenthiren et al, 2019), policy uncertainty (Puwanenthiren et al, 2019), and audit quality (Dang et al, 2022) as key factors influencing firms' choices in the context of SEOs. Building on this line of research, we show readability of annual reports as a significant but omitted determinant in the existing literature that can explain differences in the choice of SEOs in the U.S.…”

Corporate Governance and the Performance of Seasoned Equity Offering Firms in Nigeria: The Mediating Effect of Agency Costs

“…However, there are few studies on the impact of corporate governance and firm performance e.g. [55]; [19]; [92]; [45]; [11]. The study therefore, intends to fill this gap in Nigeria and to improve on the earlier study of [42] from the global perspective by examining a combination of both internal and external corporate governance variables as against only external corporate governance variables by [42].…”