Marginal Value of Cash and Equity Issues

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