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Behavior of liquidity and returns around Canadian seasoned equity offerings

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  • Kryzanowski, Lawrence
  • Lazrak, Skander
  • Rakita, Ian
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    Abstract

    Spread costs and their adverse selection and temporary components for Canadian SEOs follow an approximate V-shaped pattern with a trough at the closing window. Enhanced ownership diffusion partly explains the decrease in these spread costs post-SEO completion versus pre-SEO announcement. SEO spread costs decrease after the April 1996 TSX decimalization. The adverse selection cost of privately-placed Canadian SEOs decreases after Multilateral Instrument 45-102 reduced the lock-up period to four months in 2001. Consistent with results for non-US SEOs, negative abnormal returns (ARs) occur in announcement windows for undifferentiated SEOs. ARs are significantly different for public (significantly negative) versus private (insignificantly positive) SEOs consistent with their associated differential reductions in information asymmetry. Conditional residual volatilities decrease post-announcement, consistent with a diminished temporary spread cost and expected behavior following an unanticipated event.

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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Banking & Finance.

    Volume (Year): 34 (2010)
    Issue (Month): 12 (December)
    Pages: 2954-2967

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    Handle: RePEc:eee:jbfina:v:34:y:2010:i:12:p:2954-2967

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    Web page: http://www.elsevier.com/locate/jbf

    Related research

    Keywords: Seasoned equity offerings Liquidity Lock-up period Asymmetric information Conditional volatility Clustering;

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    Cited by:
    1. Normazia, M. & Hassan, Taufiq & Ariff, M. & Shamsher, M., 2013. "Private placement, share prices, volume and financial crisis: An emerging market study," Global Finance Journal, Elsevier, vol. 24(3), pages 203-221.
    2. Chiu, Junmao & Chung, Huimin & Ho, Keng-Yu & Wang, George H.K., 2012. "Funding liquidity and equity liquidity in the subprime crisis period: Evidence from the ETF market," Journal of Banking & Finance, Elsevier, Elsevier, vol. 36(9), pages 2660-2671.

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