Explanation for market response to seasoned equity offerings |
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Authors: | Robert M Hull Sungkyu Kwak Rosemary L Walker |
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Institution: | 1. School of Business, Washburn University, 1700 SW College Avenue, Topeka, KS, 66621, USA
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Abstract: | In this paper, we use a multivariate framework to extend the recent univariate seasoned equity offering (SEO) research that investigated the valuation impact of inside ownership. Our multivariate findings re-enforce and add to the univariate findings as we show that the inside ownership level is a consistent factor in accounting for short-run and long-run returns around SEOs, while the decrease in inside ownership has no impact on short-run returns but influences long-run returns in a manner inconsistent with signaling theory. Compared to prior research, our regression tests do a much better job of accounting for returns associated with SEO announcements. For short-run regression tests, the four major factors associated with superior stock returns are: lower underpricing; greater profitability prior to SEO; lower inside ownership level; and, less stock price variability prior to SEO. For long-run regression tests, the four major conditions linked to superior returns are: greater profitability prior to SEO; smaller inside ownership level; relative size of the offering; and, greater decrease in inside ownership level. |
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