Examining Bank SEOs: Are Offers Made by Undercapitalized Banks Different?
46 Pages Posted: 12 Feb 2009
Date Written: January 14, 2009
Abstract
Despite extensive monitoring, banking operations are often considered opaque, and despite explicit capital adequacy regulation, banks may have substantial discretion in their financing. Both monitoring and capital regulation have changed substantially over time, with the adoption of FDICIA being one important breakpoint. This article empirically studies seasoned equity offerings (SEOs) by banks to understand how opacity and capital regulation interact to determine the timing of bank SEOs and their market valuation. SEOs, both by banks that are undercapitalized relative to regulatory standards and by well-capitalized banks, are fully discretionary, even before FDICIA. Both undercapitalized and well-capitalized banks experience similar and significantly negative stock price reactions to SEO announcements, and also have similar prior patterns of insider trading and similar economic drivers of the issuance decision. Moreover, post-SEO abnormal stock returns are similar to benchmark returns for both types of issuers in the long run, suggesting that, contrary to the well-documented evidence for industrial SEOs, investors understand the value implications of bank SEOs upon announcement. The evidence implies that undercapitalized banks' SEOs are more discretionary and that all bank SEOs are less opaque than implied by earlier studies.
Keywords: Bank Seasoned Equity Offers, Undercapitalization, Overcapitalization, Involuntary Issues, Voluntary Issues, Market Reaction, Long run performance, Long-run returns
JEL Classification: G12, G21, G32, G28
Suggested Citation: Suggested Citation
Do you have a job opening that you would like to promote on SSRN?
Recommended Papers
-
Insider Trading and the Long-Run Performance of New Security Issues
-
Long-Run Performance and Insider Trading in Completed and Canceled Seasoned Equity Offerings
By Kathleen M. Kahle, Craig G. Dunbar, ...
-
Managerial Opportunism? Evidence from Directors' and Officers' Insurance Purchases
By John Chalmers, Larry Dann, ...
-
By Hong Zou, Wong Sonia, ...
-
The Long-Run Performance of Firms that Withdraw Seasoned Equity Offerings
-
Commercial Real Estate Overbuilding in the 1980's: Beyond the Hog Cycle
-
The Information Content of Insider Call Options Trading
By Robert Chen and Xinlei Shelly Zhao
-
Does the Sequence of Seasoned Equity Offerings Matter?
By Ranjan D'mello, Oranee Tawatnuntachai, ...
-
Mutual Funds’ Holdings and Listed Firms’ Dividend Payouts in China
By Jingjing Yang, Jing Chi, ...