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Do Firms Issue more equity when markets are more liquid?

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  • René M. Stulz
  • Dimitrios Vagias
  • Mathijs A. van Dijk

Abstract

This paper investigates how public equity issuance is related to stock market liquidity. Using quarterly data on IPOs and SEOs in 36 countries over the period 1995-2008, we show that equity issuance is significantly and positively related to contemporaneous and lagged innovations in aggregate local market liquidity. This relation survives the inclusion of proxies for market timing, capital market conditions, growth prospects, asymmetric information, and investor sentiment. Liquidity considerations are as important in explaining equity issuance as market timing considerations. The relation between liquidity and issuance is driven by the quarters with the greatest deterioration in liquidity and is stronger for IPOs than for SEOs. Firms are more likely to carry out private instead of public equity issues and to postpone public equity issues when market liquidity worsens. Overall, we interpret our findings as supportive of the view that market liquidity is an important determinant of equity issuance that is distinct from other determinants examined to date.

Suggested Citation

  • René M. Stulz & Dimitrios Vagias & Mathijs A. van Dijk, 2013. "Do Firms Issue more equity when markets are more liquid?," NBER Working Papers 19229, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:19229
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    Cited by:

    1. Abdul Rashid & Hira Mehmood, 2017. "Liquidity and Capital Structure: The Case of Pakistani Non-Financial Firms," Economics Bulletin, AccessEcon, vol. 37(2), pages 675-685.
    2. Craig W. Holden & Stacey Jacobsen & Avanidhar Subrahmanyam, 2014. "The Empirical Analysis of Liquidity," Foundations and Trends(R) in Finance, now publishers, vol. 8(4), pages 263-365, December.
    3. Chen, Jiayuan & Gong, Di & Muckley, Cal, 2020. "Stock market illiquidity, bargaining power and the cost of borrowing," Journal of Empirical Finance, Elsevier, vol. 58(C), pages 181-206.
    4. Seth Armitage & Dionysia Dionysiou & Angelica Gonzalez, 2014. "Are the Discounts in Seasoned Equity Offers Due to Inelastic Demand?," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 41(5-6), pages 743-772, June.

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    JEL classification:

    • F30 - International Economics - - International Finance - - - General
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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