Financial Management, Forthcoming
45 Pages Posted: 25 Aug 2011 Last revised: 20 Feb 2013
Date Written: February 18, 2013
Despite high levels of asymmetry of information, firms that issue SEOs within a year of their IPO (follow-on SEOs) are able to offer shares at a lower discount compared to more mature firms. We provide evidence that this seeming contradiction can be explained by a very high degree of demand for the follow-on offering. We find that the likelihood of issuing a follow-on SEO is significantly related to the level of institutional demand and that discounts are lower for follow-on SEOs in which institutional demand is high. We also consider the joint effect of cash holdings and follow-on SEOs on discounts, since firms that have recently gone public tend to hold high levels of cash. Underpricing is higher for firms with elevated pre-offer levels of cash, which is consistent with market timing predictions. However, this relation is mitigated for both follow-on SEOs and issues that also have high share demand.
Keywords: seasoned equity offerings, initial public offerings, underpricing, offer discounts, float, institutional demand
JEL Classification: G14, G24, G32
Suggested Citation: Suggested Citation
Intintoli, Vincent and Jategaonkar, Shrikant P. and Kahle, Kathleen M., The Effect of Demand for Shares on the Timing and Underpricing of Seasoned Equity Offers (February 18, 2013). Financial Management, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1915586 or http://dx.doi.org/10.2139/ssrn.1915586