How Economic Policy Uncertainty Affects the Cost of Raising Equity Capital: Evidence from Seasoned Equity Offerings

48 Pages Posted: 15 Aug 2017 Last revised: 26 Jun 2019

See all articles by Yue-Cheong Chan

Yue-Cheong Chan

Hong Kong Polytechnic University - School of Accounting and Finance

Walid Saffar

Hong Kong Polytechnic University - School of Accounting and Finance

K.C. John Wei

Hong Kong Polytechnic University

Date Written: June 24, 2019

Abstract

Economic policy uncertainty (EPU) increases the cost of raising equity capital, especially when the economy is weak. A one standard deviation increase in the EPU index developed by Baker, Bloom, and Davis (2016) is associated with a 43 basis point increase in the price discount of seasoned equity offerings (SEOs) during the recent 2000-2014 period. The cross-sectional analysis shows that the EPU effect on SEO discounts is stronger for firms with greater dependence on government spending, less informative stock price, or a smaller EPU beta. Moreover, there are fewer SEO activities in periods when there is a high degree of policy uncertainty.

Keywords: Economic Policy Uncertainty; Seasoned Equity Offerings; SEO Discounts

JEL Classification: G24; G32; G38

Suggested Citation

Chan, Yue-Cheong and Saffar, Walid and Wei, Kuo-Chiang (John), How Economic Policy Uncertainty Affects the Cost of Raising Equity Capital: Evidence from Seasoned Equity Offerings (June 24, 2019). Available at SSRN: https://ssrn.com/abstract=3017843 or http://dx.doi.org/10.2139/ssrn.3017843

Yue-Cheong Chan

Hong Kong Polytechnic University - School of Accounting and Finance ( email )

School of Accounting and Finance
Hong Kong Polytechnic University
Hung Hom, Kowloon
Hong Kong
852-2766-7118 (Phone)
852-2356-9550 (Fax)

Walid Saffar (Contact Author)

Hong Kong Polytechnic University - School of Accounting and Finance ( email )

Li Ka Shing Tower
Hong Hum
Kowloon
Hong Kong

Kuo-Chiang (John) Wei

Hong Kong Polytechnic University ( email )

11 Yuk Choi Rd
Hung Hom
Hong Kong

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