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The Effects of Pre‐issue Information Releases on Seasoned Equity Offerings

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  • Yi‐Mien Lin
  • Shwu‐Jen You
  • Fung‐Jiao Lin

Abstract

Because of information asymmetry, managers tend to make pre‐issue disclosures to reduce the costs of seasoned equity offerings. This paper discusses whether pre‐issue information releases of major investments, financial forecast revisions and dividends help the investors to anticipate seasoned equity offerings and assist in reducing the information asymmetry when the managers announce equity issues. We analyze price and trading volume reactions to equity issue announcements to infer the degree of information asymmetry. Consistent with our expectations, we find that these three types of pre‐issue disclosures can help investors to anticipate equity issues. However, after controlling for anticipation and cross‐sectional variation in uncertainty, we find none of the disclosures are capable of reducing the price drop at issue announcement, and only the disclosures of increased cash dividends have the effect of reducing the negative trading volume reactions. In addition, both the price and trading volume reactions are not related to the intervals between the disclosures and the issue announcements.

Suggested Citation

  • Yi‐Mien Lin & Shwu‐Jen You & Fung‐Jiao Lin, 2008. "The Effects of Pre‐issue Information Releases on Seasoned Equity Offerings," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 35(9‐10), pages 1138-1163, November.
    • Handle: RePEc:bla:jbfnac:v:35:y:2008:i:9-10:p:1138-1163
    DOI: 10.1111/j.1468-5957.2008.02106.x
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    2. Katsushi Suzuki & Kazuo Yamada, 2010. "Does the Intended Use of Proceeds and Bank's Characteristics Affect the Bank Underwriters' Certification Role? Evidence from Seasoned Equity Offerings," Discussion Papers 2010-55, Kobe University, Graduate School of Business Administration.

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