Financial Misstatements and Contracting in the Equity Market: Evidence from Seasoned Equity Offerings

The Role of Accounting Conservatism in the Equity Market: Evidence from Seasoned Equity Offerings

The Accounting Review ◽

10.2308/accr-50420 ◽

2013 ◽

Vol 88 (4) ◽

pp. 1327-1356 ◽

Cited By ~ 61

Author(s):

Yongtae Kim ◽

Siqi Li ◽

Carrie Pan ◽

Luo Zuo

Keyword(s):

Negative Impact ◽

Seasoned Equity Offerings ◽

Equity Market ◽

Accounting Conservatism ◽

Data Availability ◽

Equity Offerings ◽

Market Reactions ◽

Conservative Accounting ◽

Financing Costs

ABSTRACT Using seasoned equity offerings (SEOs) from 1989 to 2008, we examine the role of accounting conservatism in the equity market. We find that issuers with a greater degree of conservatism experience fewer negative market reactions to SEO announcements. We further show that an important mechanism through which conservatism affects SEO announcement returns is by mitigating the negative impact of information asymmetry. Additional analyses suggest that our results are not driven by the effects of other forms of corporate governance. We also find evidence that conservative issuers continue to use conservative accounting after the equity offerings. Taken together, our findings are consistent with the argument that accounting conservatism reduces financing costs in SEOs. Data Availability: Data used in this study are available from public sources identified in the study.

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The Relationship between Earnings Management and Equity Market Timing

Revista de Administração Contemporânea ◽

10.1590/1982-7849rac2021200289.en ◽

2021 ◽

Vol 25 (6) ◽

Author(s):

Matheus da Costa Gomes ◽

João Paulo Augusto Eça ◽

Marcelo Botelho da Costa Moraes ◽

Maurício Ribeiro do Valle

Keyword(s):

Earnings Management ◽

Market Timing ◽

Careful Analysis ◽

Seasoned Equity Offerings ◽

Equity Market ◽

Net Income ◽

Equity Offerings ◽

The Relationship ◽

Profitability Ratios ◽

Equity Market Timing

ABSTRACT Objective: this study aims to verify if companies that practice equity market timing have higher earnings management levels around the stock issue period. Method: we used a sample of 68 seasoned equity offerings (SEOs) in Brazil from 2004-2015. First, we ranked the sample among companies that used market timing (timers) behavior in the SEOs and those that did not (non-timers). Second, we estimated each company’s earnings management levels by the Modified Jones and Modified Jones with ROA models. Finally, we tested the relationship between earnings management and equity market timing using a linear regression model. Results: the results show that the timers managed earnings more intensively in the quarters around SEOs than the non-timers. This happens to increase net income and consequently improve profitability ratios. Therefore, to explore opportunity windows, managers can inflate accounting profit through accruals and influence the market’s ability to correctly price shares. Conclusion: Brazilian companies practice earnings management as a way of exploiting opportunity windows in the stock market. The conclusion reinforces the need for a careful analysis of the company’s profits by investors, analysts, auditors, and regulators while allowing efforts to avoid such practices through compliance, governance, and regulation.

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The effects of lines of credit on market timing and the underpricing of seasoned equity offerings

Review of Accounting and Finance ◽

10.1108/raf-09-2016-0153 ◽

2019 ◽

Vol 18 (1) ◽

pp. 157-175

Author(s):

Anh Ngo ◽

Oscar Varela ◽

Xie Feixue

Keyword(s):

Market Timing ◽

Seasoned Equity Offerings ◽

Equity Market ◽

Standard Errors ◽

Equity Offerings ◽

Timing Behavior ◽

Content Type ◽

Lines Of Credit ◽

Two Measures ◽

The Relationship

PurposeThis paper aims to examine the effects of lines of credit on a firm’s market timing behavior and the pricing of its seasoned equity offerings (SEOs). It shows that firms with lines of credit are more likely to time the equity market and receive less underpricing for their SEOs. It also shows that the propensity of firms with lines of credit to time the market is particularly significant for financially unconstrained firms. The results are robust to different measures of market timing and financial constraint, and these fill the gap in the literature that, to the best of the authors’ knowledge, has not examined the relation between lines of credit, market timing and value creation as related to equity offerings.Design/methodology/approachThe paper first investigates the relationship between lines of credit and the probability of a firm issuing SEOs using a logistic model. The paper then investigates whether firms with lines of credit engage in market timing behavior using ordinary least square regressions with two-way cluster-robust standard errors (standard errors that are robust to simultaneous correlation along two dimensions, such as firms and time) with two measures of market timing and two measures for financial constraints. Finally, the paper examines the relationship between lines of credit and SEO underpricing.FindingsIt was found that firms with lines of credit are more likely to time the equity market, perhaps driven by the financing flexibility resulting from the existence of their lines of credit. This finding comes mainly from financially unconstrained firms, as such an effect is not observed among financially constrained firms with lines of credit. It is further shown that firms with lines of credit are more likely to experience less severe equity underpricing, perhaps owing to market timing behavior. The results provide evidence on how lines of credit may create value to a firm through its market timing.Originality/valueThe paper sheds new light on how lines of credit may create value to a firm through the market timing channel.

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