The Capital Supply Channel in SEO Peer Effects

63 Pages Posted: 3 May 2016 Last revised: 31 Oct 2018

See all articles by Matthew T. Billett

Matthew T. Billett

Indiana University - Kelley School of Business - Department of Finance

Jon A. Garfinkel

University of Iowa - Tippie College of Business

Yi Jiang

California State University, Fullerton

Date Written: June 10, 2018

Abstract

We document a capital supply channel in the connections between firms’ and their peers’ SEOs. Financially constrained firms are more likely to do an SEO (have higher SEO hazards) when more of their peers conducted an SEO within the prior six months. Positive exogenous shocks to indexer equity demand act as a substitute for this peer influence, and vice-versa. We also document a channel of reduced asymmetric information costs behind the influence of peer SEOs on constrained firms’ SEO likelihood. Finally, SEO peer effects are muted when the firm and peers are direct product market competitors, consistent with competitive dynamics.

Keywords: Peer Effects, Capital Supply, Financial Intermediaries, SEOs, Hazards, Competition

JEL Classification: G32

Suggested Citation

Billett, Matthew T. and Garfinkel, Jon A. and Jiang, Yi, The Capital Supply Channel in SEO Peer Effects (June 10, 2018). Kelley School of Business Research Paper No. 16-38. Available at SSRN: https://ssrn.com/abstract=2774186 or http://dx.doi.org/10.2139/ssrn.2774186

Matthew T. Billett

Indiana University - Kelley School of Business - Department of Finance ( email )

1309 E. 10th St.
Bloomington, IN 47405
United States
812-855-3366 (Phone)

Jon A. Garfinkel (Contact Author)

University of Iowa - Tippie College of Business ( email )

108 PBB
Iowa City, IA 52242-1000
United States
319-335-0943 (Phone)
319-335-3690 (Fax)

HOME PAGE: http://www.biz.uiowa.edu/faculty/jgarfinkel

Yi Jiang

California State University, Fullerton ( email )

P.O. Box 6848
Fullerton, CA CA 92834-6848
United States
657-278-4363 (Phone)
657-278-2161 (Fax)

HOME PAGE: http://business.fullerton.edu/finance/yjiang/

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