Abstract

http://ssrn.com/abstract=868284
 
 

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SEO Risk Dynamics


Murray Carlson


University of British Columbia (UBC) - Sauder School of Business

Adlai J. Fisher


University of British Columbia (UBC) - Sauder School of Business

Ron Giammarino


University of British Columbia (UBC) - Sauder School of Business

November 1, 2010

Review of Financial Studies, 23 (11), 4026-4077

Abstract:     
This paper investigates the dynamics of firm level beta and volatility around seasoned equity offerings. Beta increases prior to the SEO and decreases thereafter. This pattern is generally consistent with a real options explanation of SEO underperformance, but existing models predict a sharp risk drop, while we find a gradual decline. To reconcile this difference, we extend the theory to consider investment commitment and internal financing. In the cross-section, we show that firms with high prior return runups experience larger post-issuance underperformance, as well as more substantial post-issuance declines in beta. By contrast, large market-wide runups, which might be taken as a measure of sentiment, do not precede either postissuance underperformance or post-issuance beta declines. Finally, equity issues coincide with low points in both own firm and market-wide volatility, suggesting the possibility of volatility timing in corporate financing activities.

Number of Pages in PDF File: 48

Keywords: Seasoned Equity Offering, Real Options, Dynamic Risk, Dynamic Beta, Investment Commitment, Time-to-Build, Long Run Event Studies, Abnormal Return

JEL Classification: G31, G32

Accepted Paper Series


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Date posted: December 6, 2005 ; Last revised: May 7, 2013

Suggested Citation

Carlson, Murray and Fisher, Adlai J. and Giammarino, Ron, SEO Risk Dynamics (November 1, 2010). Review of Financial Studies, 23 (11), 4026-4077. Available at SSRN: http://ssrn.com/abstract=868284 or http://dx.doi.org/10.2139/ssrn.868284

Contact Information

Murray D. Carlson (Contact Author)
University of British Columbia (UBC) - Sauder School of Business ( email )
2053 Main Mall
Vancouver, BC V6T 1Z2
Canada
604-822-8358 (Phone)
Adlai J. Fisher
University of British Columbia (UBC) - Sauder School of Business ( email )
2053 Main Mall
Vancouver, BC V6T 1Z2
Canada
604-822-8331 (Phone)
604-822-4695 (Fax)
HOME PAGE: http://finance.sauder.ubc.ca/~fisher
Ronald Giammarino
University of British Columbia (UBC) - Sauder School of Business ( email )
2053 Main Mall
Vancouver BC V6T 1Z2
Canada
604-822-8357 (Phone)
604-822-4695 (Fax)
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