Buying Manipulation around Seasoned Equity Offerings

50 Pages Posted: 25 Nov 2019

See all articles by Suman Banerjee

Suman Banerjee

Stevens Institute of Technology; Stevens Institute of Technology

Thomas H. Noe

University of Oxford - Said Business School; University of Oxford - Balliol College; Bank of Finland; European Corporate Governance Institute

Kai Wang

Stevens Institute of Technology - School of Business

Date Written: October 8, 2019

Abstract

We show that seasoned equity offerings (SEOs), in which secondary share-offering size greatly exceeds market share turnover, provide a unique opportunity for stock price manipulation by speculators holding restricted shares. The proposed new theory is consistent with several puzzling empirical findings, for example, the positive abnormal stock return between announcement and issuance and the long-term poorer returns of issuing firms after SEOs. The manipulation is characterized by a strong buying in the secondary market prior to the issuance, which drives up the market price and thereby the offering price of restricted shares, and a large amount of liquidation of restricted shares in the SEO. Our model predicts that favorable market reactions with speculator's manipulative intent after SEO announcement could occur, which naturally leads to a successful issuance and over-investment based long-term underperformance after SEO.

Keywords: Informed Speculator, Seasoned Equity Offerings, Market Feedback, Stock Price Manipulation, Project Financing, Market Microstructure

JEL Classification: G15, G32, G33, G38, K4

Suggested Citation

Banerjee, Suman and Noe, Thomas H. and Wang, Kai, Buying Manipulation around Seasoned Equity Offerings (October 8, 2019). Stevens Institute of Technology School of Business Research Paper. Available at SSRN: https://ssrn.com/abstract=3491784 or http://dx.doi.org/10.2139/ssrn.3491784

Suman Banerjee

Stevens Institute of Technology ( email )

525 River Street
Hoboken, NJ 07030
United States
2012613689 (Phone)

Stevens Institute of Technology ( email )

Hoboken, NJ 07030
United States

Thomas H. Noe

University of Oxford - Said Business School ( email )

Park End Street
Oxford, OX1 3BJ
United Kingdom

University of Oxford - Balliol College ( email )

Broad St
Oxford, OX1 3BJ
United Kingdom

Bank of Finland ( email )

P.O. Box 160
FIN-00101 Helsinki
Finland

European Corporate Governance Institute ( email )

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

Kai Wang (Contact Author)

Stevens Institute of Technology - School of Business ( email )

Hoboken, NJ 07030
United States

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