Abstract

http://ssrn.com/abstract=1915586
 


 



The Effect of Demand for Shares on the Timing and Underpricing of Seasoned Equity Offers


Vincent Intintoli


Southern Illinois University at Carbondale

Shrikant Jategaonkar


Southern Illinois University at Edwardsville

Kathleen M. Kahle


University of Arizona - Department of Finance

February 18, 2013

Financial Management, Forthcoming

Abstract:     
Despite high levels of asymmetry of information, firms that issue SEOs within a year of their IPO (follow-on SEOs) are able to offer shares at a lower discount compared to more mature firms. We provide evidence that this seeming contradiction can be explained by a very high degree of demand for the follow-on offering. We find that the likelihood of issuing a follow-on SEO is significantly related to the level of institutional demand and that discounts are lower for follow-on SEOs in which institutional demand is high. We also consider the joint effect of cash holdings and follow-on SEOs on discounts, since firms that have recently gone public tend to hold high levels of cash. Underpricing is higher for firms with elevated pre-offer levels of cash, which is consistent with market timing predictions. However, this relation is mitigated for both follow-on SEOs and issues that also have high share demand.

Number of Pages in PDF File: 45

Keywords: seasoned equity offerings, initial public offerings, underpricing, offer discounts, float, institutional demand

JEL Classification: G14, G24, G32

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Date posted: August 25, 2011 ; Last revised: February 20, 2013

Suggested Citation

Intintoli, Vincent and Jategaonkar, Shrikant and Kahle, Kathleen M., The Effect of Demand for Shares on the Timing and Underpricing of Seasoned Equity Offers (February 18, 2013). Financial Management, Forthcoming. Available at SSRN: http://ssrn.com/abstract=1915586 or http://dx.doi.org/10.2139/ssrn.1915586

Contact Information

Vincent Intintoli
Southern Illinois University at Carbondale ( email )
Mail Code 4626
Carbondale, IL 62901-4626
United States
618-453-1420 (Phone)
618-453-5626 (Fax)
Shrikant Jategaonkar
Southern Illinois University at Edwardsville ( email )
Edwardsville, IL 62026-1102
United States
Kathleen M. Kahle (Contact Author)
University of Arizona - Department of Finance ( email )
McClelland Hall
P.O. Box 210108
Tucson, AZ 85721-0108
United States
520-621-7489 (Phone)
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