Institutional shareholders and SEO market timing |
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| Affiliation: | 1. Zicklin School of Business, Baruch College, One Bernard Baruch Way, New York, NY 10010, USA;2. Adelphi University, 1 South Ave, New York, NY 11530, USA;1. University of Manitoba, 181 Freedman Crescent, Winnipeg, MB R3T 5V4, Canada;2. University of Waterloo, 200 University Avenue West, Waterloo, ON N2L 3G1, Canada;3. University of Ottawa, 55 Laurier Avenue East, Ottawa, ON K1N 6N5, Canada;4. University of Lethbridge, 4401 University Drive, Lethbridge, AB T1K 3M4, Canada;1. Department of Accounting & Finance, Lancaster University Management School, LA1 4YX, UK;2. Accounting & Finance Group, University of Edinburgh Business School, Buccleuch Place, EH8 9JS, UK;1. Fisher College of Business, The Ohio State University, 700E Fisher Hall, 2100 Neil Avenue, Columbus, OH 43210, USA;2. The Wharton School, University of Pennsylvania, 1316 SH-DH, Philadelphia, PA 19104, USA;1. College of Management, Yuan Ze University, No. 135, Yuan-Tung Road, Chung-Li, Taiwan;2. Department of Business Administration, College of Business, National Taipei University, No. 151, University Rd., New Taipei City, Taiwan;3. Department of Statistics, College of Business, National Taipei University, No. 151, University Rd., New Taipei City, Taiwan;1. The College of Business, Florida State University, P.O. Box 3061110, Tallahassee, FL 32306-1110, United States;2. Manning School of Business, University of Massachusetts Lowell, 1 University Avenue, Lowell, MA 01854, United States |
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| Abstract: | Pecking order and market timing theories assume that corporate financing decisions are made in the interests of existing shareholders. We find that existing institutional investors, on average, significantly increase their share ownership at the time of the SEO, including SEOs that would be classified as overpriced based on ex-ante measures of mispricing, such as pre-issue returns and market-to-book ratios. We further find that higher pre-existing institutional shareholdings lead to less SEO timing. Overall, the results question whether firms engage in equity timing to benefit existing shareholders at the expense of investors buying shares in the SEOs. |
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