Accelerated Equity Offers and Firm Quality

Abstract

A series of deregulatory reforms have promoted accelerated equity issuance at the expense of adequate time for underwriter and market scrutiny. Today the majority of publicly listed companies can raise equity on a moment’s notice, but many eligible issuers choose to allow additional time for scrutiny. We hypothesize that issuers with less favorable inside information (i.e. lower quality issuers) prefer to avoid the pre-issue scrutiny that could reveal their inside information and are therefore more likely to accelerate their offer. We find supportive evidence using measures of stock valuation and earnings quality as proxies for firm quality. The results suggest that investors are slow to capitalize the information embedded in the speed of issuance.

Keywords: Due diligence, seasoned equity offer, underwriter certification, firm quality, shelf registration, accelerated offer

JEL Classification: G14, G24, G32