Skewness Preference and Seasoned Equity Offers
Review of Corporate Finance Studies, Forthcoming
Posted: 14 Jan 2016
Date Written: January 2016
We find that the degree of expected idiosyncratic skewness in seasoned equity issuers’ stock returns is an important determinant of flotation costs and subsequent abnormal stock performance. High skewness issuers incur significantly greater offer price discounts, particularly when institutional share allocation is largest, pay higher gross underwriting spreads, and exhibit poorer stock performance in the three years after issuance, all compared to low skewness issuers. These results suggest that skewness-induced overpricing increases the flotation costs of seasoned equity offers and leads to poor subsequent stock performance.
Keywords: idiosyncratic skewness, seasoned equity offers, flotation costs, long run stock performance
JEL Classification: G14, G32
Suggested Citation: Suggested Citation