Adverse Selection, Spread Behavior, and Over-the-Counter Seasoned Equity Offerings
AbstractIn this paper the effects of over-the-counter seasoned equity issuances on the percentage bid-ask spreads around announcement and offer dates are examined. A declining spread in the pre-announcement period suggests that resolution of information asymmetry begins well before the announcement date. Further, using issue size as a proxy for the extent of information asymmetry, the authors observe that spreads for larger issues reach "normal" levels before the first public disclosure of the offering. For smaller issues this occurs only on the offer date. Results are consistent with the dealer experiencing reduced adverse information risk as a result of information-gathering efforts during the underwriting process.
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Bibliographic InfoArticle provided by Southern Finance Association & Southwestern Finance Association in its journal Journal of Financial Research.
Volume (Year): 15 (1992)
Issue (Month): 1 (Spring)
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