The impact of surprise offer-share adjustments on offer-day returns: evidence from seasoned equity offers

Using a sample of seasoned equity offerings (SEOs), we examine the eleventh-hour information carried by the final offer-share adjustment. We argue that if market participants interpret the final offer-share adjustment as a new information signal regarding the demand for the stocks issued, a greater final offer-share adjustment will affect the offer-day return positively (demand information hypothesis). Alternatively, if investors interpret the final offer-share adjustment as increasing the supply of stocks issued and/or as diluting the value of existing shares, a greater final offer-share adjustment will affect the offer-day returns negatively (price-pressure and dilution hypothesis). We provide empirical evidence that the offer-day returns are positively related to the final offer-share adjustment after controlling for confounding factors, supporting the demand information hypothesis. Our results also remain intact even after controlling for the endogeneity. Overall, our findings suggest that the final offer-share adjustment is another important determinant of offer-day returns, in addition to the final offer-price adjustment that Altinkiliç and Hansen J Financ Econ 69(2):285–323 (2003)] report.