Market Reaction, Managerial Response, and the Classification of SEOs

58 Pages Posted: 26 Jan 2011

See all articles by Konan Chan

Konan Chan

National Chengchi Unversity (NCCU) - Finance

Nandkumar Nayar

Lehigh University - College of Business & Economics

Ajai K. Singh

Department of Finance, University of Central Florida

Wen Yu

University of St. Thomas - Opus College of Business

Multiple version iconThere are 2 versions of this paper

Date Written: January 21, 2011

Abstract

The registration date of a seasoned equity offering marks the beginning of the offering process and serves to galvanize further scrutiny and information gathering about the issuer. We posit that the market reaction to this new additional information influences issuers’ decisions about their SEOs. Consistent with this view, we develop a parsimonious ex ante measure that successfully separates stock offerings designed to time the market (Regular offers) from those presumably used for bona fide corporate reasons such as to fund investments (Improved offers). Improved offerings, where the dollar offer size exceeds the amount filed initially at registration, record a significantly positive price reaction on the offer date and do not underperform their benchmark in the post-issuance period. Conversely, Regular offers underperform in both instances. Further, Improved SEO firms make higher investments and generate stronger institutional demand compared to Regular SEOs.

Keywords: SEOs, Market Timing, Managerial Response, Market Reaction

JEL Classification: G14, G32, G39

Suggested Citation

Chan, Konan and Nayar, Nandkumar and Singh, Ajai K. and Yu, Wen, Market Reaction, Managerial Response, and the Classification of SEOs (January 21, 2011). Available at SSRN: https://ssrn.com/abstract=1748557 or http://dx.doi.org/10.2139/ssrn.1748557

Konan Chan (Contact Author)

National Chengchi Unversity (NCCU) - Finance ( email )

No. 64, Chih-Nan Road
Section 2
Taipei, 11623
Taiwan
+886-2-29393091 ext 81239 (Phone)

Nandkumar Nayar

Lehigh University - College of Business & Economics ( email )

621 Taylor Street, Rauch Business Center
Lehigh University
Bethlehem, PA 18015-3117
United States
610-758-4161 (Phone)
610-758-6429 (Fax)

Ajai K. Singh

Department of Finance, University of Central Florida ( email )

College of Business Administration
12744 Pegasus Drive
Orlando, FL 32816
United States
407-823-0761 (Phone)
407-823-6676 (Fax)

Wen Yu

University of St. Thomas - Opus College of Business ( email )

2115 Summit Avenue
St. Paul, MN 55105
United States
651-962-5428 (Phone)
651-962-5093 (Fax)

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