Abstract

http://ssrn.com/abstract=686541
 
 

References (38)



 
 

Citations (36)



 


 



The Role of Institutional Investors in Seasoned Equity Offerings


Thomas J. Chemmanur


Boston College - Carroll School of Management

Shan He


Louisiana State University

Gang Hu


Babson College, Finance Division

December 1, 2008

Journal of Financial Economics (JFE), Vol. 94, No. 3, pp. 384-411, 2009
AFA 2006 Boston Meetings Paper
NBER 2007 Market Microstructure Meetings Paper
EFA 2007 Ljubljana Meetings Paper

Abstract:     
Do institutional investors possess private information about SEOs? If they do, do they use this private information to trade in a direction opposite to this information (consistent with a "manipulative trading" role) or in the same direction as this information (consistent with a direct "information production" role)? In this paper, we make use of a large sample of transaction-level institutional trading data to study institutional trading before, during, and after an SEO, and thus distinguish between the above two roles of institutional investors in SEOs. Our data allow us to explicitly identify institutional SEO share allocations for the first time in the literature. We analyze the consequences of the private information possessed by institutional investors for: SEO share allocation; institutional trading before and after the SEO and realized trading profitability; and the SEO discount. Our results can be summarized as follows. First, institutions are able to identify and obtain more allocations in SEOs with better long-term returns. Second, more pre-offer net buying of the SEO firm's equity by institutional investors is associated with more institutional SEO share allocations, and also more post-offer net buying. Third, institutions flip only a very small fraction of their SEO share allocations: 3.20 percent during the first two days post-SEO. However, this lack of flipping does not appear to be costly to institutional investors, since there is no significant difference between the extent of SEO underpricing and the realized profitability of institutional SEO share allocation sales. Fourth, institutional investors' post-SEO trading significantly outperforms a naive buy-and-hold trading strategy in SEOs. Further, the profitability of post-offer trading in SEOs where institutions obtained allocations is higher than that of trading in SEOs where they did not obtain allocations. Finally, more pre-offer institutional net buying and larger institutional SEO share allocations are associated with a smaller SEO discount. Overall, our results are consistent with institutions possessing private information about SEOs, and with an information production rather than a manipulative trading role for institutional investors in SEOs.

Number of Pages in PDF File: 57

Keywords: Seasoned Equity Offerings, Institutional investors, Manipulative trading, Information production, SEO discount, Underpricing

JEL Classification: G32, G24, G14

Accepted Paper Series





Download This Paper

Date posted: March 25, 2005 ; Last revised: April 14, 2010

Suggested Citation

Chemmanur, Thomas J. and He, Shan and Hu, Gang, The Role of Institutional Investors in Seasoned Equity Offerings (December 1, 2008). Journal of Financial Economics (JFE), Vol. 94, No. 3, pp. 384-411, 2009; AFA 2006 Boston Meetings Paper; NBER 2007 Market Microstructure Meetings Paper; EFA 2007 Ljubljana Meetings Paper. Available at SSRN: http://ssrn.com/abstract=686541

Contact Information

Thomas J. Chemmanur (Contact Author)
Boston College - Carroll School of Management ( email )
440 Fulton Hall
Boston College
Chestnut Hill, MA 02467-3808
United States
617-552-3980 (Phone)
617-552-0431 (Fax)
Shan He
Louisiana State University ( email )
136 Atkinson
Baton Rouge, LA 70803
United States
Gang Hu
Babson College, Finance Division ( email )
223 Tomasso Hall
Wellesley, MA 02457
United States
781-239-4946 (Phone)
HOME PAGE: http://faculty.babson.edu/ghu/
Feedback to SSRN


Paper statistics
Abstract Views: 4,064
Downloads: 827
Download Rank: 15,611
References:  38
Citations:  36

© 2014 Social Science Electronic Publishing, Inc. All Rights Reserved.  FAQ   Terms of Use   Privacy Policy   Copyright   Contact Us
This page was processed by apollo6 in 0.375 seconds