Seasoned Equity Issuers’ Prospectus Filings: How Informative Is Their Tone?

The Financial Review, Forthcoming

76 Pages Posted: 4 Nov 2020 Last revised: 31 Jan 2022

See all articles by Rongbing Huang

Rongbing Huang

Kennesaw State University - Michael J. Coles College of Business

Hong Qian

Oakland University - Department of Accounting and Finance

Santhosh Ramalingegowda

University of Georgia - Terry College of Business

Date Written: January 27, 2022

Abstract

Seasoned equity issuers file Forms S and 424B with the Securities and Exchange Commission. We find that 424B filings’ weak-modal tone is positively related to offer price discounts and negatively related to offer-day stock returns. Increases in cautionary (weak-modal, uncertain, and negative) tone from the initial to final filing are followed by lower abnormal stock returns. Preliminary evidence indicates that cautionary tone relates positively to litigation risk and increased after the passage of the Sarbanes-Oxley Act. Our findings suggest that the cautionary tone of seasoned equity issuers’ prospectuses has negative information content, which is gradually incorporated into the stock prices.

Keywords: Seasoned Equity Offering, SEO, Textual Analysis, Tone, Disclosure, Security Issuance, Equity Issuance, Offer Price Discount, Underpricing, Corporate Disclosure, Risk Disclosure

JEL Classification: G14; G18; G24

Suggested Citation

Huang, Rongbing and Qian, Hong and Ramalingegowda, Santhosh, Seasoned Equity Issuers’ Prospectus Filings: How Informative Is Their Tone? (January 27, 2022). The Financial Review, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3694659 or http://dx.doi.org/10.2139/ssrn.3694659

Rongbing Huang (Contact Author)

Kennesaw State University - Michael J. Coles College of Business ( email )

560 Parliament Garden Way
Mail Drop #0403
Kennesaw, GA 30144
United States

Hong Qian

Oakland University - Department of Accounting and Finance ( email )

347 Elliott Hall
275 Varner Dr.
Rochester, MI 48309
United States

Santhosh Ramalingegowda

University of Georgia - Terry College of Business ( email )

Brooks Hall
Athens, GA 30602-6254
United States
706-542-3612 (Phone)

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