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Do Firms Issue More Equity When Markets Become More Liquid?

Fisher College of Business Working Paper No. 2016-03-024

Charles A Dice Center Working Paper No. 2016-24

44 Pages Posted: 31 Dec 2016  

Rogier Hanselaar

Erasmus University Rotterdam (EUR)

René M. Stulz

Ohio State University (OSU) - Department of Finance; National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI)

Mathijs A. Van Dijk

Erasmus University - Rotterdam School of Management; Erasmus Research Institute of Management (ERIM)

Date Written: December 2016

Abstract

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

Hanselaar, Rogier and Stulz, René M. and Van Dijk, Mathijs A., Do Firms Issue More Equity When Markets Become More Liquid? (December 2016). Charles A Dice Center Working Paper No. 2016-24. Available at SSRN: https://ssrn.com/abstract=2891439 or http://dx.doi.org/10.2139/ssrn.2891439

Rogier Hanselaar

Erasmus University Rotterdam (EUR) ( email )

Burgemeester Oudlaan 50
3000 DR Rotterdam, Zuid-Holland 3062PA
Netherlands

Rene M. Stulz (Contact Author)

Ohio State University (OSU) - Department of Finance ( email )

2100 Neil Avenue
Columbus, OH 43210-1144
United States

HOME PAGE: http://www.cob.ohio-state.edu/fin/faculty/stulz

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

European Corporate Governance Institute (ECGI)

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

Mathijs A. Van Dijk

Erasmus University - Rotterdam School of Management ( email )

P.O. Box 1738
Rotterdam, 3000 DR
Netherlands
+31 10 408 1124 (Phone)
+31 10 408 9017 (Fax)

HOME PAGE: http://mathijsavandijk.com/

Erasmus Research Institute of Management (ERIM)

P.O. Box 1738
3000 DR Rotterdam
Netherlands

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