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The marketing of seasoned equity offerings

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  • Gao, Xiaohui
  • Ritter, Jay R.

Abstract

In an accelerated seasoned equity offering (SEO), an issuer foregoes the investment bank's marketing efforts in return for a lower fee. To explain why many issuing firms choose a higher cost fully marketed offer, we posit that the marketing effort flattens the issuer's short-run demand curve. Alternatively stated, with a fully marketed offer, the issuer is paying investment bankers to create demand, making the elasticity of demand at the time of issuance an endogenous choice variable. Empirical analysis shows that both the pre-issue elasticity of the issuing firm's demand curve and the offer size are important determinants of the offer method choice. We find evidence of a large transitory increase in the elasticity of demand for issuers conducting fully marketed SEOs.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Financial Economics.

Volume (Year): 97 (2010)
Issue (Month): 1 (July)
Pages: 33-52

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Handle: RePEc:eee:jfinec:v:97:y:2010:i:1:p:33-52

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Web page: http://www.elsevier.com/locate/inca/505576

Related research

Keywords: Marketing of securities Follow-on offerings Seasoned equity offerings Bookbuilding;

References

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Citations

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Cited by:
  1. Neupane, Suman & Thapa, Chandra, 2013. "Underwriter reputation and the underwriter–investor relationship in IPO markets," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 24(C), pages 105-126.
  2. Stulz, Rene M. & Vagias, Dimitrios & Van Dijk, Mathijs A., 2013. "Do Firms Issue More Equity When Markets Are More Liquid?," Working Paper Series 2013-10, Ohio State University, Charles A. Dice Center for Research in Financial Economics.
  3. Bargeron, Leonce & Kulchania, Manoj & Thomas, Shawn, 2011. "Accelerated share repurchases," Journal of Financial Economics, Elsevier, vol. 101(1), pages 69-89, July.
  4. Autore, Don M. & Kovacs, Tunde, 2014. "Investor recognition and seasoned equity offers," Journal of Corporate Finance, Elsevier, vol. 25(C), pages 216-233.
  5. Oesch, David & Schuette, Dustin & Walter, Ingo, . "Real Effects of Investment Banking Relationships: Evidence from the Financial Crisis," Working Papers on Finance 1405, University of St. Gallen, School of Finance.
  6. 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.
  7. Yen-cheng Chang & Harrison Hong & Inessa Liskovich, 2013. "Regression Discontinuity and the Price Effects of Stock Market Indexing," NBER Working Papers 19290, National Bureau of Economic Research, Inc.
  8. Bertoni, Fabio & Giudici, Giancarlo, 2014. "The strategic reallocation of IPO shares," Journal of Banking & Finance, Elsevier, vol. 39(C), pages 211-222.
  9. Hong, Harrison & Kubik, Jeffrey D. & Fishman, Tal, 2012. "Do arbitrageurs amplify economic shocks?," Journal of Financial Economics, Elsevier, vol. 103(3), pages 454-470.
  10. Bank for International Settlements, 2012. "Operationalising the selection and application of macroprudential instruments," CGFS Papers, Bank for International Settlements, number 48, July.
  11. Brochet, Francois & Srinivasan, Suraj, 2014. "Accountability of independent directors: Evidence from firms subject to securities litigation," Journal of Financial Economics, Elsevier, vol. 111(2), pages 430-449.

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