Skewness Preference and Seasoned Equity Offers
Review of Corporate Finance Studies, Forthcoming
61 Pages Posted: 21 Mar 2011 Last revised: 30 Jun 2016
Date Written: December 1, 2015
We find that the degree of expected idiosyncratic skewness in seasoned equity issuers’ stock returns is an important determinant of flotation costs and post-issue abnormal stock performance. High skewness issuers incur significantly greater offer price discounts, particularly when institutional share allocation is largest, pay higher gross underwriting spreads, and exhibit poorer post-issue stock performance in the three years after issuance, all compared to low skewness issuers. The results suggest that skewness-induced overpricing increases the flotation costs of seasoned equity offers and leads to poor post-issue stock performance.
Keywords: idiosyncratic skewness, seasoned equity offers, flotation costs, long run stock performance
JEL Classification: G14, G32
Suggested Citation: Suggested Citation