The Effect of Demand for Shares on the Timing and Underpricing of Seasoned Equity Offers

Financial Management, Forthcoming

45 Pages Posted: 25 Aug 2011 Last revised: 20 Feb 2013

Vincent Intintoli

Clemson University

Shrikant P. Jategaonkar

Southern Illinois University at Edwardsville - Department of Economics

Kathleen M. Kahle

University of Arizona - Department of Finance

Date Written: February 18, 2013

Abstract

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

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

Vincent Intintoli

Clemson University ( email )

Clemson, SC 29634
United States
864-656-2263 (Phone)

Shrikant P. Jategaonkar

Southern Illinois University at Edwardsville - Department of Economics ( email )

Edwardsville, IL 62026-1102
United States

Kathleen M. Kahle (Contact Author)

University of Arizona - Department of Finance ( email )

McClelland Hall
P.O. Box 210108
Tucson, AZ 85721-0108
United States
520-621-7489 (Phone)

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