Do Governments Time Their Stock Issues?

20 Pages Posted: 18 Mar 2010

See all articles by Seung-Doo Choi

Seung-Doo Choi

Dongeui University - School of Business

William L. Megginson

University of Oklahoma

Date Written: March 15, 2010

Abstract

Several signaling models predict that firms underprice their initial offerings of equity deeply so that they can subsequently issue seasoned equity at more favorable terms. We test the implications of those models. We find a positive relation between IPO underpricing and the possibility of and the size of subsequent seasoned equity offerings. These results tend to consistent with the implications of the signaling hypotheses. The probability and size of subsequent seasoned equity offerings are closely related to stake sold at the initial public offering and to the external corporate governance variables. Those results are in sharp contrast with the market-feedback hypothesis raised by Jegadeesh, Weinsein, and Welch (1993). Curiously, aftermarket performance is irrelevant to subsequent stock issue decisions.

Keywords: underpricing, signaling, market-feedback, seasoned equity offering, market timing

JEL Classification: F59, G15, G18, G32, G38

Suggested Citation

Choi, Seung-Doo and Megginson, William L., Do Governments Time Their Stock Issues? (March 15, 2010). Available at SSRN: https://ssrn.com/abstract=1571979 or http://dx.doi.org/10.2139/ssrn.1571979

Seung-Doo Choi (Contact Author)

Dongeui University - School of Business ( email )

Busan, Busan
Korea

William L. Megginson

University of Oklahoma ( email )

307 W Brooks, 205A Adams Hall
Norman, OK 73019
United States
(405) 325-2058 (Phone)
(405) 325-1957 (Fax)

HOME PAGE: http://faculty-staff.ou.edu/M/William.L.Megginson-

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