The Capital Supply Channel in SEO Peer Effects
63 Pages Posted: 3 May 2016 Last revised: 31 Oct 2018
Date Written: June 10, 2018
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
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