Management Guidance and the Underpricing of Seasoned Equity Offerings

Posted: 1 Sep 2009 Last revised: 24 Oct 2013

See all articles by Oliver Zhen Li

Oliver Zhen Li

National University of Singapore (NUS)

Zili Zhuang

The Chinese University of Hong Kong (CUHK) - Faculty of Business Administration

Date Written: June 11, 2012

Abstract

We argue that management guidance on firms’ future earnings and other financial information serves to alleviate information asymmetry around seasoned equity offerings (SEOs), thus reducing the magnitude of SEO underpricing. Controlling for its endogeneity, we find that management guidance reduces the magnitude of SEO underpricing, especially for smaller firms. Further, the effect of guidance on SEO underpricing is driven by firms issuing guidance that is more accurate or more precise. We contribute to the extant literature on both SEOs and voluntary disclosure by providing evidence that voluntary disclosure reduces the magnitude of SEO underpricing and that this effect varies with disclosure quality.

Keywords: management guidance, seasoned equity offerings, underpricing, cost of capital

JEL Classification: G32, M41, G14

Suggested Citation

Li, Oliver Zhen and Zhuang, Zili, Management Guidance and the Underpricing of Seasoned Equity Offerings (June 11, 2012). Contemporary Accounting Research, Vol. 29(3), 2012. Available at SSRN: https://ssrn.com/abstract=1464698 or http://dx.doi.org/10.2139/ssrn.1464698

Oliver Zhen Li (Contact Author)

National University of Singapore (NUS) ( email )

Bukit Timah Road 469 G
Singapore, 117591
Singapore

Zili Zhuang

The Chinese University of Hong Kong (CUHK) - Faculty of Business Administration ( email )

Shatin N.T.
Hong Kong

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