Cash-rich seasoned equity issuers

We document that a substantial fraction of seasoned equity issuers have large pre-offering excess cash holdings. Cash-rich seasoned equity issuers are not easily reconcilable with the traditional pecking order theory on security choice. We examine the role of market timing, agency costs, precautionary motives, repatriation taxes, catering incentives, real options, and negative cash flows in driving seasoned equity offerings (SEOs) by cash-rich firms. We find that cash-rich equity issuers are more overvalued, use the SEO proceeds more opportunistically, and have a worse post-SEO operating and long-term stock price performance than non-cash-rich issuers. However, we do not detect differences in SEO announcement returns between cash-rich and non-cash-rich issuers, suggesting investors underweight firms’ excess cash holdings when assessing an SEO announcement. Overall, our findings predominantly support a market timing motive for SEOs by cash-rich issuers, while other explanations receive mixed to no support. Our results are robust to alternative empirical specifications.