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Does liquidity risk explain low firm performance following seasoned equity offerings?

  • Bilinski, Pawel
  • Liu, Weimin
  • Strong, Norman
Registered author(s):

    A seasoned equity offering (SEO) can improve a firm’s stock liquidity and lower its cost of capital. This paper examines whether SEO firms achieve a liquidity gain and the sources of this gain. It explores the role of liquidity risk in explaining SEO long-run performance. The evidence shows that SEO firms experience significant post-issue improvements in liquidity and reductions in liquidity risk. Size and book-to-market matching fails to control for these liquidity effects, generating the low long-term post-SEO performance documented in the literature. After adjusting for liquidity risk, SEO firms show normal long-term performance.

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    File URL: http://www.sciencedirect.com/science/article/pii/S0378426612001781
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    Article provided by Elsevier in its journal Journal of Banking & Finance.

    Volume (Year): 36 (2012)
    Issue (Month): 10 ()
    Pages: 2770-2785

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    Handle: RePEc:eee:jbfina:v:36:y:2012:i:10:p:2770-2785
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