Financial Statement Comparability and Valuation of Seasoned Equity Offerings

44 Pages Posted: 30 Dec 2013 Last revised: 28 Feb 2014

See all articles by Philip B. Shane

Philip B. Shane

College of William & Mary; Monash University; Monash University - Department of Accounting

David B. Smith

University of Nebraska at Lincoln - School of Accountancy

Suning Zhang

Iowa State University - Debbie and Jerry Ivy College of Business

Date Written: February 27, 2014

Abstract

This study examines the relationship between financial statement comparability and the valuation of seasoned equity offerings (SEOs). We argue that financial statement comparability allows underwriters and investors to better assess the quality of firms that tap into the seasoned equity market through better comparison with peer firms, thus reducing price protection on the part of the underwriter and manipulation of investor perceptions about the true underlying value of the firm’s equity securities on the part of the firm. As a result, we find that SEO firms with better comparability experience less underpricing at the time of seasoned equity offerings. We also find that better financial statement comparability attenuates management’s ability to sell overvalued equity, especially for SEO firms with non-negative earnings surprises and positive real earnings management. Findings in this paper provide empirical evidence to support the decision usefulness of financial statement comparability.

Keywords: Seasoned equity offerings, Comparability, Valuation, Underpricing, Long-run performance, Accounting, Capital markets

JEL Classification: M41, G14, G24, G32

Suggested Citation

Shane, Philip B. and Smith, David B. and Zhang, Suning, Financial Statement Comparability and Valuation of Seasoned Equity Offerings (February 27, 2014). Available at SSRN: https://ssrn.com/abstract=2372965 or http://dx.doi.org/10.2139/ssrn.2372965

Philip B. Shane (Contact Author)

College of William & Mary ( email )

P.O. Box 8795
Williamsburg, VA 23185
United States

Monash University ( email )

23 Innovation Walk
Wellington Road
Clayton, Victoria 3800
Australia

Monash University - Department of Accounting ( email )

H3.43, Building H, Level 3
Monash University Caulfiled
Melbourne, VIC 3145
Australia

David B. Smith

University of Nebraska at Lincoln - School of Accountancy ( email )

307 College of Business Administration
Lincoln, NE 68588-0488
United States

Suning Zhang

Iowa State University - Debbie and Jerry Ivy College of Business ( email )

613 Wallace Road
Ames, IA 50011-2063
United States

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