Seasoned Equity Offerings, Operating Performance and Overconfidence: Evidence from the UK

Abstract:     
Prior research on seasoned equity offerings in UK shows that equity issuers report a significant long-term under performance in the period following the event. However, the factors contributing to such under performance are not yet fully explored. Using a sample of rights issues for the period 1988-1998, this study suggest that the long-term under performance is significantly related to a deterioration of companies' operating fundamentals in the post-offering period. Further comparison between "Best" and "Worst" post-issue performers reveals that long-term under performance is predominantly robust in the case of fast growing firms with over-optimistic management. This evidence is consistent with the managerial overconfidence and "empire-building" hypotheses.

Keywords: Rights issues, Seasoned equity offerings, Long-term performance, Operating performance, Managerial overconfidence

JEL Classification: G14, G32

Accepted Paper Series