Do Firms Issue More Equity When Markets Become More Liquid?
48 Pages Posted: 31 Dec 2016 Last revised: 30 May 2019
Date Written: October 30, 2017
Using quarterly data on IPOs and SEOs in 38 countries over the period 1995-2014, we show that changes in equity issuance are significantly and positively related to lagged changes in aggregate local market liquidity. This relation is at least as economically significant as the well-known relation between equity issuance and lagged stock returns. It survives the inclusion of proxies for market timing, capital market conditions, growth prospects, asymmetric information, and investor sentiment, as well as the exclusion of the financial crisis. Changes in liquidity are less relevant for firms that face greater financial pressures, firms in less financially developed countries, and during the financial crisis.
Keywords: International finance, IPOs, SEOs, market liquidity, market timing
JEL Classification: G32, F30, G15
Suggested Citation: Suggested Citation