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Agency Theory and Flotation Methods in Seasoned Equity Offerings: The Case in Taiwan

Author

Listed:
  • Kehluh Wang

    (Institute of Finance, National Chiao Tung University, 1001 Da Hsueh Road, Hsinchu, Taiwan 300, Taiwan)

  • Yi-Hsuan Chen

    (Department of Finance, Chung Hua University, No. 707, Sec. 2, WuFu Rd., Hsinchu 300, Taiwan)

  • Szu-Wei Huang

    (Institute of Finance, National Chiao Tung University, 1001 Da Hsueh Road, Hsinchu, Taiwan 300, Taiwan)

Abstract

The purpose of this study is to examine the impacts of alternative flotation methods on price performance of seasoned equity offerings, and to compare the competing hypotheses supported by asymmetric information theory and agency theory. Based on 385 sample issues which were listed in Taiwan Stock Exchange from 1996 to 2006, we find that the bookbuilding flotation method demonstrates significant positive abnormal returns for issuing firms, whereas the fixed-price method exhibits negative results. The empirical findings support the agency theory in the sense that the bookbuilding procedure offers a mechanism to strengthen the external monitoring provided by blockholders, which can subsequently reduce the agency cost and thus increase the share price. Further cross sectional analysis confirms this argument. The result of the study implies that the governments should take effective actions to help regulate agency problems in emerging markets such as Taiwan.

Suggested Citation

  • Kehluh Wang & Yi-Hsuan Chen & Szu-Wei Huang, 2008. "Agency Theory and Flotation Methods in Seasoned Equity Offerings: The Case in Taiwan," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 11(04), pages 555-567.
    • Handle: RePEc:wsi:rpbfmp:v:11:y:2008:i:04:n:s0219091508001477
    DOI: 10.1142/S0219091508001477
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    Citations

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    Cited by:

    1. Shu, Pei-Gi & Chiang, Sue-Jane, 2014. "Firm size, timing, and earnings management of seasoned equity offerings," International Review of Economics & Finance, Elsevier, vol. 29(C), pages 177-194.
    2. Holderness, Clifford G., 2018. "Equity issuances and agency costs: The telling story of shareholder approval around the world," Journal of Financial Economics, Elsevier, vol. 129(3), pages 415-439.

    More about this item

    Keywords

    Seasoned equity offerings; flotation method; agency theory;
    All these keywords.

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • G2 - Financial Economics - - Financial Institutions and Services
    • G3 - Financial Economics - - Corporate Finance and Governance

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