Liquidity Management around Seasoned Equity Offerings

39 Pages Posted: 22 Aug 2011 Last revised: 6 May 2013

See all articles by David T.L. Siu

David T.L. Siu

affiliation not provided to SSRN

Robert W. Faff

University of Queensland

Multiple version iconThere are 2 versions of this paper

Date Written: May 4, 2013


We investigate firms’ liquidity practices around seasoned equity offerings (SEOs). We broadly classify issuers on the basis of whether the firm belongs to an industry deemed to be financially constrained or unconstrained. We find that constrained-industry issuers tend to save more cash to conserve funding capacity in anticipating investment. Unconstrained industry issuers, in contrast, carry high debt and limited cash reflecting a sizable financial leash. We also find that the former firms experience significant cash stockpiling following new equity issues, whereas for the latter group, there is a significant decline in long-term debt. In the long run, unconstrained issuers who aggressively manage liquidity pre-issue have lower operating profit. However, the relation does not hold for market-based performance because investors, observing the liquidity information, quickly discount stock value at the time of the offering. Rather, post-issue market underperformance can be attributed to investors’ downward revisions relating to the transitory nature of investment opportunities.

Keywords: liquidity management, seasoned equity offerings, long run performance

JEL Classification: G14, G32, M4, M41

Suggested Citation

Siu, David T.L. and Faff, Robert W., Liquidity Management around Seasoned Equity Offerings (May 4, 2013). Available at SSRN: or

David T.L. Siu (Contact Author)

affiliation not provided to SSRN

Robert W. Faff

University of Queensland ( email )

St Lucia
Brisbane, Queensland 4072

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