Seasoned Equity Offerings: A Survey

Abstract

We review the theory and statistical evidence concerning the causes and effects of seasoned public offerings of common stock. We focus in particular on results and findings that post-date the well known survey by Smith (1986). In fact, recent studies now provide at least partial answers to several of the "unresolved issues'' listed by Smith at the end of his survey. These include (i) to what extent does the market reaction to issue announcements depend on the flotation method; (ii) the conditions that lead issuers to select uninsured rights or rights with standby underwriting over a firm commitment underwritten offer; (iii) why rights issues continue to be the predominant flotation method in many foreign jurisdictions while they have become virtually extinct in the U.S.; and (iv) the determinants of direct and indirect flotation costs across flotation methods. In addition, we review (v) recent trends in aggregate issue activity; (vi) the timing of individual equity issues; and (vii) market microstructure effects of equity offers.

Keywords: Seasoned equity offering, SEO, flotation costs, flotation method choice, underwriting, firm commitment offers, best effort, rights offer, standby rights offer, quality certification, shareholder takeup, adverse selection, market timing, aggregate issue activity, market microstructure effects

JEL Classification: G3, G15, G31, G32, G35