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An Empirical Investigation of Short-Selling Activity Prior to Seasoned Equity Offerings

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  • Safieddine, Assem
  • Wilhelm, William J, Jr
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    Abstract

    The authors investigate the nature and magnitude of short-selling activity around seasoned equity offerings, the relation between short-selling activity and issue discounts, and the consequences of the Securities and Exchange Commission adoption of Rule 10b-21 in response to concerns about manipulative short-selling practices. Seasoned offerings are characterized by abnormally high levels of short selling and option open interest. Higher levels of such activity are related to lower expected proceeds from the issuance of new shares. Where it could not be circumvented, Rule 10b-21 appears to have curbed short-selling activity and reduced issue discounts. Copyright 1996 by American Finance Association.

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    Bibliographic Info

    Article provided by American Finance Association in its journal Journal of Finance.

    Volume (Year): 51 (1996)
    Issue (Month): 2 (June)
    Pages: 729-49

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    Handle: RePEc:bla:jfinan:v:51:y:1996:i:2:p:729-49

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    Cited by:
    1. Geczy, Christopher C. & Musto, David K. & Reed, Adam V., 2002. "Stocks are special too: an analysis of the equity lending market," Journal of Financial Economics, Elsevier, vol. 66(2-3), pages 241-269.
    2. Autore, Don M. & Gehy, Dominique, 2013. "Changing the rules again: Short selling in connection with public equity offers," Journal of Banking & Finance, Elsevier, vol. 37(6), pages 1974-1985.
    3. Delisle, R. Jared & Lee, Bong Soo & Mauck, Nathan, 2012. "The dynamic relation between short sellers, option traders, and aggregate returns," MPRA Paper 42566, University Library of Munich, Germany.
    4. Koenig-Matsoukis, Laure, 2012. "Informed trading before rights issues," Economics Papers from University Paris Dauphine 123456789/9015, Paris Dauphine University.
    5. Dungey, Mardi & McKenzie, Michael D. & Yalama, Abdullah, 2013. "The cross market effects of short sale restrictions," The North American Journal of Economics and Finance, Elsevier, vol. 26(C), pages 53-71.
    6. O. Emre Ergungor & C.N.V. Krishnan & Ajai K. Singh & Allan A. Zebedee, 2005. "Offer-price discount of bank seasoned equity offers: do voluntary and involuntary offers convey different information?," Working Paper 0515, Federal Reserve Bank of Cleveland.
    7. Autore, Don M. & Kovacs, Tunde, 2014. "Investor recognition and seasoned equity offers," Journal of Corporate Finance, Elsevier, vol. 25(C), pages 216-233.
    8. Karpoff, Jonathan M. & Lee, Gemma & Masulis, Ronald W., 2013. "Contracting under asymmetric information: Evidence from lockup agreements in seasoned equity offerings," Journal of Financial Economics, Elsevier, vol. 110(3), pages 607-626.
    9. O. Emre Ergungor & C.N.V. Krishnan & Ajai K. Singh & Allan A. Zebedee, 2004. "Bank seasoned equity offers: do voluntary and involuntary offers differ?," Working Paper 0414, Federal Reserve Bank of Cleveland.
    10. Chen, Hsuan-Chi & Chou, De-Wai & Lai, Christine W. & Yeh, Yi-Ting, 2014. "The role of lending-relationship banks in the underwriting of seasoned equity offerings: Conflict of interest or certification?," The North American Journal of Economics and Finance, Elsevier, vol. 28(C), pages 327-346.

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