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Seasoned equity offerings and customer–supplier relationships

Author

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  • Johnson, William C.
  • Kang, Jun-Koo
  • Masulis, Ronald W.
  • Yi, Sangho

Abstract

We investigate how seasoned equity offerings (SEOs) by issuers with large customers affect both trading partners’ market values and the relationship's health. We hypothesize that SEOs reveal adverse information about an issuer's major customers and find that issuers and their large customers experience negative returns on SEO announcements. These results are more pronounced when customers have higher levels of information asymmetry and when customer-supplier relationships are particularly important. Large customers of issuers experience larger declines in post-SEO sales, operating performance, and credit ratings than large customers of non-issuers. Also, SEO issuer sales to large customers and relationship duration significantly decline.

Suggested Citation

  • Johnson, William C. & Kang, Jun-Koo & Masulis, Ronald W. & Yi, Sangho, 2018. "Seasoned equity offerings and customer–supplier relationships," Journal of Financial Intermediation, Elsevier, vol. 33(C), pages 98-114.
    • Handle: RePEc:eee:jfinin:v:33:y:2018:i:c:p:98-114
    DOI: 10.1016/j.jfi.2017.09.003
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    Cited by:

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    4. Mansley, Nick & Wang, Zilong & Weng, Xiaoyu & Zhang, Wenjing, 2023. "Good growth, bad growth: Market reaction to capital raising for REIT expansion," International Review of Financial Analysis, Elsevier, vol. 86(C).

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    More about this item

    Keywords

    Seasoned equity offering; Large customer; Supplier; SEO announcement returns; Trading relationship; Information asymmetry;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
    • M40 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - General

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