Anchoring on Historical High Prices and Seasoned Equity Offerings

Abstract

We document that firms’ financing decisions are affected by historical high prices. The ratio of the monthly high price to the 12-month historical high positively affects the probability of an SEO. Furthermore, the announcement market reaction is muted and the offering discount is smaller if the pre-announcement stock price is high relative to historical high. The results suggest that historical high price reference points may help managers rationally time SEOs to take advantage of market reception and minimize issuance costs.

Keywords: SEO, equity issue, reference point

JEL Classification: G32