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Use of the Proceeds and Long-term Performance of French SEO Firms

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  • Pierre Jeanneret

Abstract

"This paper examines the long-term stock performance of French SEO with rights by looking at the intended use of the proceeds. Firms that raise equity for pure capital structure motives are separated from the ones that use the SEO proceeds to finance specific investment projects. Issuers in the first category are concerned about preserving their financial flexibility and they are expected to evolve in a capital structure irrelevancy framework. On the other hand, issuers in the second category are more inclined to be sensitive to adverse selection problems or agency conflicts and thus, they should be more exposed to under-reaction on the long-run. According to a matching firm methodology, 'Financing New Investment' issuers underperform their benchmark at a rate of 4% to 8% per year over a 36-month horizon while 'Capital Structure' issuers do not show any abnormal performance. These results are robust according to alternative Beta pricing models. In addition, managers of both issuer's types time the SEO after a period of positive abnormal performance in order to sell overpriced securities. However, only the 'Financing New Investment' sample experiences a performance reversal; the abnormal returns decreasing gradually from the issue on, to become significantly negative 24 months after the event." Copyright Blackwell Publishers Ltd, 2005.

Suggested Citation

  • Pierre Jeanneret, 2005. "Use of the Proceeds and Long-term Performance of French SEO Firms," European Financial Management, European Financial Management Association, vol. 11(1), pages 99-122.
  • Handle: RePEc:bla:eufman:v:11:y:2005:i:1:p:99-122
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    File URL: http://www.blackwell-synergy.com/doi/abs/10.1111/j.1354-7798.2005.00277.x
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    Cited by:

    1. Siougle, Georgia, 2007. "Accounting information and the valuation of Seasoned Equity Offerings (SEOs)," The International Journal of Accounting, Elsevier, vol. 42(4), pages 380-395, December.
    2. Autore, Don M. & Bray, David E. & Peterson, David R., 2009. "Intended use of proceeds and the long-run performance of seasoned equity issuers," Journal of Corporate Finance, Elsevier, vol. 15(3), pages 358-367, June.
    3. repec:eee:quaeco:v:65:y:2017:i:c:p:168-181 is not listed on IDEAS
    4. Hong Bo & Zhongnan Huang & Elmer Sterken, 2015. "Bait and Switch: How Do Chinese Firms Use Proceeds from Seasoned Equity Offerings," CESifo Working Paper Series 5198, CESifo Group Munich.
    5. Andriansyah, Andriansyah & Messinis, George, 2016. "Intended use of IPO proceeds and firm performance: A quantile regression approach," Pacific-Basin Finance Journal, Elsevier, vol. 36(C), pages 14-30.
    6. Wolfgang Bessler & Stefan Thies, 2006. "Initial Public Offerings, Subsequent Seasoned Equity Offerings, and Long-Run Performance: Evidence from IPOs in Germany," Journal of Entrepreneurial Finance, Pepperdine University, Graziadio School of Business and Management, vol. 11(3), pages 1-37, Fall.

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