The Underpricing of Seasoned Equity Offerings: 1983-1998

45 Pages Posted: 6 Jul 2001

See all articles by Kenneth Kim

Kenneth Kim

Tongji University - School of Economics and Management; SUNY at Buffalo - School of Management

Hyun-Han Shin

Yonsei University

Date Written: May 2001


Using a sample of over 3,000 seasoned equity offerings (SEOs) from 1983 to 1998, we find significant SEO discounts (underpricing) during the 1990s, but not during the 1980s. The natural question is: Why do we observe a difference between the 1980s and 1990s? Among the different explanations that we considered, one stood out as being most culpable: In 1988, the SEC adopted Rule 10b-21 to curb manipulative short-selling activities preceding equity issue dates. Thus, this change in the regulatory environment for SEOs may have caused the larger discounts. Indeed, the year the Rule went into effect coincides with the year from which we begin observing significant SEO discounts. We considered an exhaustive set of alternative explanations, including new theories that have arisen out of the recent IPO underpricing literature, but our overall conclusion remains intact: The Rule's restriction on short-selling, which makes pre-offer day prices less informative, appears to have made issue discounts larger in the 1990s.

Keywords: Seasoned equity offerings, underpricing, Rule 10b-21, short sale

JEL Classification: G14, G32

Suggested Citation

Kim, Kenneth A. and Shin, Hyun-Han, The Underpricing of Seasoned Equity Offerings: 1983-1998 (May 2001). Available at SSRN: or

Kenneth A. Kim (Contact Author)

Tongji University - School of Economics and Management ( email )

Siping Road 1500
Shanghai, Shanghai 200092

SUNY at Buffalo - School of Management ( email )

Jacobs Management Center
Buffalo, NY 14222
United States

Hyun-Han Shin

Yonsei University ( email )

50 Yonsei Ro
Seodaemoon Gu
Korea, Republic of (South Korea)
82-2-21235466 (Phone)

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