Seasoned Equity Issuers’ Prospectus Filings: How Informative Are the Tones?

Abstract

Seasoned equity issuers file Forms S and 424B with the Securities and Exchange Commission. We find that weak-modal tones of these filings are positively related to offer price discounts and negatively related to offer-day stock returns. Increases in cautionary tones from the initial S filing to the 424B filing are associated with lower abnormal stock returns after the offer date. However, we find no significant evidence that cautionary filing tones are related to underpricing. Overall, our findings suggest that cautionary tones of seasoned equity issuers’ prospectus filings have significant negative information content, which is gradually incorporated into the stock prices.

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

JEL Classification: G14; G18; G24