Strategic Disclosure, Analyst Behavior and Equity Flotation Costs

58 Pages Posted: 15 Mar 2010

See all articles by Pawel Bilinski

Pawel Bilinski

City University London - Sir John Cass Business School; University of Bristol

Norman C. Strong

University of Manchester - Alliance Manchester Business School

Martin Walker

University of Manchester - Manchester Business School

Date Written: March 12, 2010

Abstract

We document that the quality of public and private information available to investors improves before seasoned equity offerings (SEO) but deteriorates shortly thereafter. As firms improve their financial communication, analyst earnings forecasts become more accurate and less biased. However, forecast optimism increases after the offering. Firms that enhance the quality of their public information before SEOs increase the likelihood of the offering being a success and reduce the costs of raising finance: underwriters are more likely to exercise their overallotment option, which increases the issue proceeds beyond the prospectus amount, and the underwriting fee decreases. Changes in private information quality induce higher information asymmetry between informed and uninformed investors, increasing flotation costs. The results are robust to controlling for endogeneity in the offering size and underwriter quality. Our findings are consistent with firms strategically improving their information disclosure around seasoned equity issues.

Keywords: Asymmetric information, public and private information, analyst behavior, new equity issues

JEL Classification: D82, G12, G14, G24, G32, M41, M43

Suggested Citation

Bilinski, Pawel and Strong, Norman Charles and Walker, Martin, Strategic Disclosure, Analyst Behavior and Equity Flotation Costs (March 12, 2010). Available at SSRN: https://ssrn.com/abstract=1569647 or http://dx.doi.org/10.2139/ssrn.1569647

Pawel Bilinski (Contact Author)

City University London - Sir John Cass Business School ( email )

106 Bunhill Row
London, EC1Y 8TZ
United Kingdom

University of Bristol ( email )

University of Bristol,
Senate House, Tyndall Avenue
Bristol, BS8 ITH
United Kingdom

Norman Charles Strong

University of Manchester - Alliance Manchester Business School ( email )

Booth Street West
Manchester, M15 6PB
United Kingdom

Martin Walker

University of Manchester - Manchester Business School ( email )

Booth Street West
Manchester, M15 6PB
United Kingdom

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