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

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  • Bilinski, Pawel
  • Liu, Weimin
  • Strong, Norman

Abstract

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.

Suggested Citation

  • Bilinski, Pawel & Liu, Weimin & Strong, Norman, 2012. "Does liquidity risk explain low firm performance following seasoned equity offerings?," Journal of Banking & Finance, Elsevier, vol. 36(10), pages 2770-2785.
  • Handle: RePEc:eee:jbfina:v:36:y:2012:i:10:p:2770-2785
    DOI: 10.1016/j.jbankfin.2012.07.009
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    Cited by:

    1. repec:eee:finmar:v:37:y:2018:i:c:p:70-96 is not listed on IDEAS
    2. He, Yan & Wang, Junbo & John Wei, K.C., 2014. "A comprehensive study of liquidity before and after SEOs and SEO underpricing," Journal of Financial Markets, Elsevier, vol. 20(C), pages 61-78.
    3. Greg Filbeck & Xin Zhao & Ryan Knoll, 2017. "An analysis of working capital efficiency and shareholder return," Review of Quantitative Finance and Accounting, Springer, vol. 48(1), pages 265-288, January.
    4. Huang, Chia-Wei & Ho, Po-Hsin & Lin, Chih-Yung & Yen, Ju-Fang, 2014. "Firm age, idiosyncratic risk, and long-run SEO underperformance," International Review of Economics & Finance, Elsevier, vol. 34(C), pages 246-266.

    More about this item

    Keywords

    Event studies; Seasoned equity offerings; Liquidity risk;

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • G2 - Financial Economics - - Financial Institutions and Services

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