Market Reaction to Seasoned Offerings in China

57 Pages Posted: 29 Jul 2016

See all articles by Jia Liu

Jia Liu

University of Salford

Saeed Akbar

University of Liverpool - Accounting and Finance Division

Syed Zulfiqar Ali Shah

University of Warwick - Warwick Business School

Dayong Zhang

Southwestern University of Finance and Economics (SWUFE) - Research Institute of Economics & Management

Dong Pang

University of Bedfordshire

Date Written: May/June 2016

Abstract

This study examines stock market reaction to the announcement of various forms of seasoned issues in China. Our empirical evidence demonstrates that market reactions differ in ways that suggest a difference between management’s internal assessment and the market’s assessment of the stock price. The market responds unfavourably to the announcement, notably in the case of rights issues and also with regard to open offers. Private placements experience an unfavourable pre‐announcement reaction, which contrasts with the favourable reaction after the event. Convertible bond issues generate positive excess returns consistent with the market’s confidence that they can help to align management and shareholders’ interests. Further investigation shows that market reaction is related to factors specific to the issuer and issue by reference to the period immediately surrounding the issue. Specifically, ownership concentration, agency matters connected with equity offerings, investor protection connected with fund allocation and security pricing, and the influence of powerful moneyed interests together provide an instructive insight into market reaction. Institutional inefficiency pertaining to underwriting, auditing, analysts’ forecasts and credit ratings are found to have a weak association with market price, consistent with due public scepticism concerning management and their gatekeepers.

Keywords: seasoned issues, seasoned equity offerings, convertible bond issues, market reaction, information, information asymmetry, agency costs, market infrastructure, China

JEL Classification: G12, G14, G32, G30

Suggested Citation

Liu, Jia and Akbar, Saeed and Shah, Syed Zulfiqar Ali and Zhang, Dayong and Pang, Dong, Market Reaction to Seasoned Offerings in China (May/June 2016). Journal of Business Finance & Accounting, Vol. 43, Issue 5-6, pp. 597-653, 2016, Available at SSRN: https://ssrn.com/abstract=2815725 or http://dx.doi.org/10.1111/jbfa.12198

Jia Liu (Contact Author)

University of Salford ( email )

M5 4WT Greater Manchester
United Kingdom

Saeed Akbar

University of Liverpool - Accounting and Finance Division ( email )

United Kingdom

Syed Zulfiqar Ali Shah

University of Warwick - Warwick Business School ( email )

University of Warwick
Warwick Business School
Coventry, CV4 7AL
United Kingdom

Dayong Zhang

Southwestern University of Finance and Economics (SWUFE) - Research Institute of Economics & Management ( email )

55 Guanghuacun Street
Chengdu, Sichuan 610074
China

Dong Pang

University of Bedfordshire ( email )

Vicarage St
Luton, LU1 3JU
United Kingdom

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