Significant issuance date returns in seasoned equity offerings: An options-based resolution of a puzzle
AbstractThe significant negative issuance day returns associated with seasoned equity offerings (SEOs) have been a puzzle. In this paper we provide two explanations for this empirical regularity. First, using an option-based argument, we contend that issuance day returns are negative because of SEO related declines in volatility that reduce the option value of equity. Our empirical examination of US SEOs between 1983 and 2003 strongly supports this contention. Second, we find that the negative issuance date return is also related to market liquidity around the issuance date. Our findings are robust to various sub-samples and the uncertainty resolution argument, and are not driven by SEO buy-sell order imbalances.
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Bibliographic InfoArticle provided by Elsevier in its journal International Review of Financial Analysis.
Volume (Year): 17 (2008)
Issue (Month): 5 (December)
Contact details of provider:
Web page: http://www.elsevier.com/locate/inca/620166
G14 G24 G31 G32 Seasoned equity issues SEOs Equity financing Corporate finance Options Investment banking Valuation Liquidity;
Find related papers by JEL classification:
- G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
- G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
- G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
- G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
- Sea - - - - - -
- equ - - - - - -
- iss - - - - - -
- SEO - - - - - -
- Equ - Macroeconomics and Monetary Economics - - - - -
- fin - - - - - -
- Cor - Mathematical and Quantitative Methods - - - - -
- fin - - - - - -
- Opt - Economic Development, Technological Change, and Growth - - - - -
- Inv - Health, Education, and Welfare - - - - -
- ban - - - - - -
- Val - - - - - -
- Liq - Industrial Organization - - - - -
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