Bait and Switch: How Do Chinese Firms Use Proceeds from Seasoned Equity Offerings

42 Pages Posted: 10 Feb 2015

See all articles by Hong Bo

Hong Bo

University of London - School of Oriental and African Studies (SOAS)

Zhongnan Huang

University of London - School of Oriental and African Studies (SOAS)

Elmer Sterken

University of Groningen - Faculty of Economics and Business; CESifo (Center for Economic Studies and Ifo Institute)

Date Written: January 31, 2015

Abstract

We reveal motivations of Chinese firms for issuing Seasoned Equity Offerings (SEO) by examining why firms change the use of SEO proceeds and how they use unspecified SEO proceeds. Using 533 SEOs issued by Chinese firms during 1999-2006, we find that firms do not use unspecified SEO proceeds on capital investment regardless of the nature of controlling shareholders. We find that if the controlling shareholder is the state, then the firm uses unspecified proceeds to stockpile cash; if the controlling shareholder is a parent state-owned enterprise, then the firm uses unspecified proceeds on retiring debt and on related party transactions.

Keywords: Seasoned Equity Offerings (SEO), use of SEO proceeds, SEO motives, controlling shareholders

JEL Classification: G300, G320, L200

Suggested Citation

Bo, Hong and Huang, Zhongnan and Sterken, Elmer, Bait and Switch: How Do Chinese Firms Use Proceeds from Seasoned Equity Offerings (January 31, 2015). CESifo Working Paper Series No. 5198, Available at SSRN: https://ssrn.com/abstract=2562274 or http://dx.doi.org/10.2139/ssrn.2562274

Hong Bo (Contact Author)

University of London - School of Oriental and African Studies (SOAS) ( email )

Thornhaugh Street
Russell Square: College Buildings 541
London, WC1H 0XG
United Kingdom

Zhongnan Huang

University of London - School of Oriental and African Studies (SOAS)

Thornhaugh Street
Russell Square: College Buildings 541
London, WC1H 0XG
United Kingdom

Elmer Sterken

University of Groningen - Faculty of Economics and Business ( email )

Postbus 72
9700 AB Groningen
Netherlands

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

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