Marginal Value of Cash and Equity Issues

57 Pages Posted: 18 Jan 2023

See all articles by Ranjan D'Mello

Ranjan D'Mello

Wayne State University - Department of Finance

Mark Gruskin

Pennsylvania State University

Sungjoung Kwon

Wayne State University - Mike Ilitch School of Business

Date Written: January 16, 2023

Abstract

We investigate the motivations for conducting equity issues by examining the value that investors place on cash around the offerings. The marginal value of cash for issuing firms is twice that of non-issuing firms. The higher relative valuation persists subsequent to the issue, indicating that overvaluation is not a primary motive for SEOs. Investors do not value cash more highly for newly listed issuers relative to mature issuers, inconsistent with the lifecycle hypothesis. The marginal value of cash at the preceding year-end is positively related to the cash inflow needed for operating and financing activities, supporting the survival hypothesis.

Keywords: Marginal Value of Cash, Equity Offerings, Firm-Initiated Issues

JEL Classification: G30, G32

Suggested Citation

D'Mello, Ranjan and Gruskin, Mark and Kwon, Sungjoung, Marginal Value of Cash and Equity Issues (January 16, 2023). Available at SSRN: https://ssrn.com/abstract=4325830 or http://dx.doi.org/10.2139/ssrn.4325830

Ranjan D'Mello (Contact Author)

Wayne State University - Department of Finance ( email )

2771 Woodward Ave
Mike Ilitch School of Business
Detroit, MI 48201
United States
313-577-7828 (Phone)

Mark Gruskin

Pennsylvania State University

University Park
State College, PA 16802
United States

Sungjoung Kwon

Wayne State University - Mike Ilitch School of Business ( email )

2771 Woodward Ave
Detroit, MI 48201

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