Attentive Market Timing

Abstract

This paper explores a new channel through which managers time the market: Outside investors' inattention to value-relevant public information generates stock mispricing, which is exploited by attentive firm managers in the timing of seasoned equity offerings. We test this channel in the customer-supplier link setting, where supplier managers are more attentive than outside investors to customer news. We find that supplier firms are more likely to issue seasoned equity when their customer firms have negative earnings surprises. The results are mitigated when there is common scrutiny on the customer-supplier firm pairs by outside investors and analysts. Furthermore, long-run stock market performance appears to be worse for firms that issue seasoned equity following the negative earnings surprise of their customer firms.

Keywords: SEO, Market Timing, Supply Chain, Attention

JEL Classification: G30, G14, G40