Does Market Microstructure Matter for Corporate Finance? Theory and Evidence on Seasoned Equity Offerings Decisions

2009 ◽  
Author(s):  
William M. Cheung ◽  
Scott Siu Kuen Fung ◽  
Lewis Tam
Keyword(s):  
Corporate Finance ◽  
Market Microstructure ◽  
Seasoned Equity Offerings ◽  
Equity Offerings ◽  
Finance Theory

scholarly journals Operating Performance of the Firms Issuing Equity through Rights Offer

2003 ◽  
Vol 28 (4) ◽  
pp. 25-40 ◽  
Author(s):  
P J Jijo Lukose ◽  
S Narayan Rao
Keyword(s):  
Operating Performance ◽  
Seasoned Equity Offerings ◽  
Equity Offerings ◽  
Equity Issue ◽  
Equity Issues ◽  
Foreign Companies ◽  
Market Participants ◽  
Information Hypothesis ◽  
Run Up ◽  
Finance Theory

Rights equity issue is one of the most common methods for subsequent equity issue in the Indian market. In rights offer, current shareholders are given short-term warrants on a pro-rata basis with the option to either purchase the new shares or sell the warrants in the market before expiration. Rights equity issue can be a potential solution to the adverse selection problem associated with capital issue and has comparatively low direct costs. In this paper, the authors analyse the operating performance of the BSE- listed manufacturing firms following rights equity issue and their linkages with firm-specific characteristics as hypothesized in the finance theory. They have selected 392 rights equity issues during the period 1991-2000 and used a methodology robust to the mean-reverting nature of accounting income. Consistent with empirical results for seasoned equity offerings in the US market, there is a statistically significant decline in the operating performance after the rights equity issue. This decline in performance is more severe for big firms, low market-to-book value firms, and firms with lower directors' holdings. Interestingly, foreign companies and companies belonging to small business groups do not show any declining trend. The authors find that the decline in perform- ance is due to the inefficiency in utilization of assets and not due to decrease in profit margins. Further, various proxies measuring market valuation also decline during the post-issue period after a run up in the pre-issue period. The results of the study suggest that over-investment hypothesis and agency models can better explain the decline in performance compared to asymmetric information hypothesis. The results also indicate that rights equity issues are not simple de-leveraging decisions. These findings have implications for several groups of capital market participants and the authors conclude with specific guidelines for them which are as follows: The investing public and analyst who are too optimistic about the issuers should consider deteriorating performance while arriving at the valuations. Investors should be vigilant about the ‘empire building’ implications of increased investments through rights issue. Optimistic managers should reassess the investment opportunities and have con-servative plans before approaching the market. The policy makers and regulators should come out with better regulatory framework to control and penalize the opportunistic managers.

scholarly journals Shelf versus Traditional Seasoned Equity Offerings: The Impact of Potential Short Selling

2018 ◽  
Vol 54 (3) ◽  
pp. 1285-1311 ◽  
Author(s):  
Marie Dutordoir ◽  
Norman Strong ◽  
Ping Sun
Keyword(s):  
Corporate Finance ◽  
Seasoned Equity Offerings ◽  
Short Selling ◽  
Equity Offerings ◽  
Sensitivity Tests ◽  
The Impact

Traditional seasoned equity offerings (SEOs) elicit short selling from traders trying to increase offering discounts. Such short selling is more difficult for shelf offerings because the time between their announcement and issuance tends to be shorter. We predict and find that firms with higher short-selling potential (SSP) are more likely to choose shelf over traditional SEOs. This result is robust to alternative proxies for SSP and other sensitivity tests. Further analysis suggests that shelf issuers aim to mitigate the threat of manipulative short selling. Our findings add to a growing literature showing that short selling has a real impact on corporate finance decisions.

scholarly journals Seasoned Equity Offerings as Technical Market Anomalies: Long-Term Temporal Trading Functionalities

2016 ◽  
Vol 9 (1) ◽  
pp. 96
Author(s):  
Vasiliki A. Basdekidou
Keyword(s):  
Corporate Finance ◽  
Seasoned Equity Offerings ◽  
Living System ◽  
Equity Offerings ◽  
Short Term ◽  
Market Anomalies ◽  
Smart Money ◽  
The Individual ◽  
First Time

<p>The main goal of this paper is to approach the Seasoned Equity Offerings (SEO) trading opportunities as technical market anomalies and under the prism of a number of temporal (time-based) long-term trading functionalities (long-term TTF) introduced for the first time in corporate finance literature. The long-term is defined, for the purposes of this paper, as the 3-year time period, traded usually with daily, weekly and monthly time-frames. Trading is a temporal (i.e. time-based) historical living system with a number of functions, like: SEO, IPO, stock (instrument) price action Gaps, Breakouts, etc. In this domain, a number of warning long-term and short-term dynamics timing functionalities is available, like: candlestick patterns breaks, price action patterns pivotal-lines breaks, on open gup-ups (ooGUp), on open gup-downs (ooGDn), morning breakouts (mB), etc. All these time-based functionalities are regarded as 2<sup>nd</sup> level functions (i.e. functions of functions; because of the timing involved) with great trading opportunities, and they are defined –for the first time in the corporate finance literature- by this paper as temporal (timing) trading functionalities. In particular, the SEOs with the embedded long-term TTF functionalities are great trading opportunities for the institutions, the individual (non-commercial) market investors, the swing traders, and the speculators. Data analysis shows that during the seasoned equity offerings time, shareowners significantly increase their share-holding, including offerings that would be classified as overpriced at that time; hence, the involved trading volatility is increased resulting in great trading and profit opportunities. This paper contributes to corporate finance literature by examining the SEOs functions and define and document their inherit TTF functionalities. For this purpose, four categories of share-holders are regarded: The long-term institution &amp; non-commercial traders (investors), the swing momentary institution traders (institutions), the short-term non-commercial traders (speculators) and the intraday non-commercial traders (speculators). Paper concludes that, in SEO/long-term TTF trading, apart from the insiders, the swing traders (usually the smart-money and the institutions) are more benefited, at the expense of momentary short-term and intraday speculators, while the long-term investors are not affected by the SEO offerings.</p>

Jean Tirole: The political economy of corporate finance (On the book by J. Tirole “The theory of corporate finance”)

2017 ◽  
pp. 128-141
Author(s):  
N. Ranneva
Keyword(s):  
Economic Theory ◽  
Political Economy ◽  
Graduate Students ◽  
Corporate Finance ◽  
Critical Review ◽  
The Political ◽  
Institutional Economic ◽  
New Type ◽  
Finance Theory ◽  
Empirical Material

The present article undertakes a critical review of the new book of Jean Tirole, the winner of the 2014 Nobel Prize in Economics, “The theory of cor- porate finance”, which has recently been published in Russian. The book makes a real contribution to the profession by summarizing the whole field of corporate finance and bringing together a big body of research developed over the last thirty years. By simplifying modeling, using unified analytical apparatus, undertaking reinterpretation of many previously received results, and structuring the material in original way Tirole achieves a necessary unity and simplicity in exposition of extremely heterogeneous theoretical and empirical material. The book integrates the new institutional economic theory into classical corporate finance theory and by doing so contributes to making a new type of textbook, which is quite on time and is likely to become essential reading for all graduate students in corporate finance and microeconomics and for everyone interested in these disciplines.

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