Management Quality and Equity Issue Characteristics: A Comparison of SEOs and IPOs

Financial Management, Vol. 39, Issue 4, 2010

51 Pages Posted: 13 Apr 2010 Last revised: 12 Jan 2016

See all articles by Thomas J. Chemmanur

Thomas J. Chemmanur

Boston College - Carroll School of Management

Imants Paeglis

Concordia University - John Molson School of Business

Karen Simonyan

Suffolk University - Department of Finance

Date Written: March 24, 2010

Abstract

We use a unique sample of hand-collected data on the management quality of firms making SEOs or IPOs to analyze the relationship between the management quality of a firm and its SEO characteristics, and to compare the effect of management quality on equity issue characteristics in SEOs and IPOs. We hypothesize that higher quality managers are more credible to outsiders, thereby reducing the information asymmetry facing their firm in the equity market and outsiders’ information production costs about the firm. Thus, equity issues of firms with higher management quality will be associated with more reputable underwriters, smaller underwriting spreads and other expenses, and smaller discounts (for SEOs). Further, since better managers are able to select better (larger NPV for a given scale) projects, higher management quality will also be associated with larger offer sizes. Finally, since we expect SEO firms to suffer from a smaller extent of information asymmetry compared to IPO firms, the above effects will be smaller for SEO firms compared to IPO firms. Our empirical results support the above hypotheses. Our direct tests of the relationship between management quality and information asymmetry, and our comparison of information asymmetry in SEOs versus IPOs, provide further support for the above hypotheses.

Keywords: Seasoned Equity Offerings, Management Quality, Asymmetric Information

JEL Classification: G24, G30

Suggested Citation

Chemmanur, Thomas J. and Paeglis, Imants and Simonyan, Karen, Management Quality and Equity Issue Characteristics: A Comparison of SEOs and IPOs (March 24, 2010). Financial Management, Vol. 39, Issue 4, 2010, Available at SSRN: https://ssrn.com/abstract=1589130 or http://dx.doi.org/10.2139/ssrn.1589130

Thomas J. Chemmanur

Boston College - Carroll School of Management ( email )

Finance Department, 436 Fulton Hall
Carroll School of Management, Boston College
Chestnut Hill, MA 02467-3808
United States
617-552-3980 (Phone)
617-552-0431 (Fax)

HOME PAGE: http://https://www2.bc.edu/thomas-chemmanur/

Imants Paeglis

Concordia University - John Molson School of Business ( email )

Montreal, Quebec H3G 1M8
Canada

Karen Simonyan (Contact Author)

Suffolk University - Department of Finance ( email )

8 Ashburton Place-Beacon Hill
Boston, MA 02108-2770
United States
(617) 973-5385 (Phone)

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