Anchoring on Historical High Prices and Seasoned Equity Offerings
Journal of Financial and Quantitative Analysis, Forthcoming
Posted: 22 Aug 2019
Date Written: August 20, 2019
We document that firms’ financing decisions are affected by historical high prices. The ratio of the monthly high price to the 12-month historical high price positively affects the probability of a Seasoned Equity Offering (SEO). Furthermore, the post-announcement market reaction is muted and the offering discount is smaller if the pre-announcement stock price is high relative to its historical high price. The results suggest that historical high price reference points may help managers rationally time SEOs to take advantage of market reception and minimize issuance costs.
Keywords: SEO, equity issue, equity market timing, anchoring, reference point
JEL Classification: G32
Suggested Citation: Suggested Citation