Performance of Seasoned Equity Offerings in a Risk Adjusted Environment

Abstract

This study will show that firms issuing seasoned equity have unique beta characteristics and that the beta itself has a very strong impact on the extent of post-issue underperformance. We develop a benchmark that accounts for such unique characteristic, and will subsequently measure the extent of the underperformance in light of a number of time definitions, including the 'real long-run' established to be in excess of the standard five-year time frame adopted by many writers. We shall further examine the impact of many extraneous factors on the attributes of post-issue performance. Finally, we will test whether the extent of initial issue underpricing bears an impact on the subsequent underperformance, which would then act as a mitigator of the issuing costs.

JEL Classification: G12