Long Run Underperformance of Seasoned Equity Offerings: Fact or an Illusion?

1999 ◽  
Author(s):  
Victor Soucik ◽  
David E. Allen
Keyword(s):  
Seasoned Equity Offerings ◽  
Equity Offerings ◽  
Long Run

The long run performance of secondary equity offerings on the Johannesburg Stock Exchange

2018 ◽  
Vol 13 (5) ◽  
pp. 1211-1232
Author(s):  
Jesse Alves da Cunha ◽  
Yudhvir Seetharam
Keyword(s):  
Stock Exchange ◽  
Operating Performance ◽  
Investor Sentiment ◽  
Seasoned Equity Offerings ◽  
Equity Offerings ◽  
Content Type ◽  
Market Participants ◽  
Johannesburg Stock Exchange ◽  
Long Run ◽  
The Impact

Purpose Opinions have been divided on whether there is a rational explanation to the reason behind seasoned equity offerings (SEOs) or whether the explanation lies within the behavioural intricacies attributed to stock market participants. The paper aims to discuss these issues. Design/methodology/approach This study investigates the long-run performance of firms conducting SEOs on the Johannesburg Stock Exchange (JSE) over the period of 1998–2015, by examining the return performance and operating performance of firms, along with the impact of investor sentiment on these variables. Findings The results of this study are inconsistent with the existing literature, which argues that the long-run performance of issuing firms signalled an initial underreaction to SEOs buoyed by over-optimistic investors. Research limitations/implications Instead, the long-run performance of issuing firms is adequately explained by the rational models centred on the risk-return framework, implying that investors are reacting swiftly to SEOs in an unbiased fashion. Originality/value Investor sentiment does not materially influence the long-run share performance or operating performance of issuing firms, casting doubt on the ability of the market timing theory to explain the long-run performance of SEOs. The authors thus find that SEO performance cannot be explained by behavioural-based reasoning, in contrast to some asset pricing studies on the JSE which indicate the role of sentiment in explaining returns.

scholarly journals Insider Trading and the Classification of Seasoned Equity Offerings: Evidence from Taiwan

2017 ◽  
Vol 9 (5) ◽  
pp. 58 ◽  
Author(s):  
Han-Ching Huang ◽  
Hsiu-Hsin Chiu
Keyword(s):  
Insider Trading ◽  
Abnormal Returns ◽  
Seasoned Equity Offerings ◽  
Growth Potential ◽  
Equity Offerings ◽  
Announcement Effects ◽  
Cumulative Abnormal Returns ◽  
Long Run ◽  
The Impact

This paper investigates whether insider purchasing or selling before Season equity offerings (SEO) announcement have the impact on the cumulative abnormal returns (CAR) around SEO announcement in Taiwan. We find that there are negative announcement effects around the SEO announcement, which is not consistent with the argument that there are usually positive announcement effects around the SEO announcement in Taiwan. Moreover, long-run abnormal returns following SEOs are negative. Therefore, the motivation of SEO has changed from investment to overvaluation.. Although there is net buying prior to SEO announcement, the outside investors still regard SEO announcement as a signal of overvaluation instead of growth potential.

Abnormal investment, changes in institutional ownership, and SEO long-run performance

2017 ◽  
Vol 43 (8) ◽  
pp. 842-864 ◽  
Author(s):  
Weiju Young ◽  
Ching-Chih Wu
Keyword(s):  
Design Methodology ◽  
Institutional Ownership ◽  
Seasoned Equity Offerings ◽  
Good Growth ◽  
Quadratic Relation ◽  
Equity Offerings ◽  
Managerial Incentive ◽  
Content Type ◽  
Empire Building ◽  
Long Run

Purpose The purpose of this paper is to investigate that how firms’ pre-issue investment levels and changes in institutional ownership (IO) affect their long-run performance after seasoned equity offerings (SEOs). Design/methodology/approach The authors use Richardson’s (2006) method to measure firms’ pre-issue investment levels and then divide the SEO firms into the under-, normal-, and overinvesting groups. The study examines the relation between the pre-issue abnormal investment and long-run post-issue performance. In addition, the authors examine whether changes in IO around SEOs affects SEO firms’ performance. Findings The authors find a quadratic relation between the pre-issue abnormal investment and the long-run post-issue performance. In other words, the underinvesting and overinvesting groups tend to underperform. The authors also find that changes in IO around SEOs positively associate with firms’ long-run performance. Research limitations/implications The authors ascribe the underperformance of underinvesting firms to the deficiency of good growth opportunities; for overinvesting firms, the authors link to the misalignment problem of managerial incentive (i.e. empire building). Originality/value The results suggest that long-run investors should be cautious of buying new-issue shares of underinvesting and overinvesting firms, especially those with insignificant increases in IO.

scholarly journals CEO-shareholder incentive alignment around SEOs

2015 ◽  
Vol 41 (1) ◽  
pp. 45-66
Author(s):  
Yilei Zhang ◽  
Yi Jiang
Keyword(s):  
Stock Price ◽  
Wealth Effect ◽  
Seasoned Equity Offerings ◽  
Equity Offerings ◽  
Equity Financing ◽  
Compensation Policy ◽  
Incentive Alignment ◽  
Content Type ◽  
Financing Decisions ◽  
Long Run

Purpose – The purpose of this paper is to examine CEO wealth changes around seasoned equity offerings (SEOs) to explore the shareholder-manager incentive alignment in major corporate equity financing decisions. Design/methodology/approach – The authors decompose CEO wealth into three major components: price effect, board compensation grant, and CEO’s own portfolio adjustment. The authors then compare SEO-event sample vs non-event samples; and evaluate the dynamic and long-run CEO wealth effect. Findings – The authors find when market reacts negatively to SEO announcement leading to losses in CEO’s existing firm-related wealth, CEO gets additional grants to offset the losses. Although this appears to be a rent-seeking activity, the authors find that the additional grants are mainly in the form of stock options which would have no value if stock price failed to pick up in the future. In this sense, the additional grants align the interests between shareholders and managers. Consistent with this argument, the authors show that the additional grants motivate CEOs to promote the stock performance, benefiting themselves as well as shareholders in the long-run. Originality/value – The study explicitly calculates the contribution of each wealth component to CEO total wealth effect. The results improve the understanding of CEO compensation policy change after major corporate event and contribute to the literature of the optimality explanation of prevailing compensation policy.

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