The Long-Run Performance of Firms that Withdraw Seasoned Equity Offerings

Abstract

We examine the long-run stock price and operating performance of companies that withdraw seasoned equity offerings. Firms that withdraw an offering provide an opportunity to examine the long-run impact of the intent to issue shares, independent of any agency problems that might be intensified by the actual acquisition of equity capital. As in completed SEOs, long-horizon stock returns to sample firms are substantially lower than returns to control firms. Long-run operating performance is similarly poor. Long run stock price performance is worst among high market-to-book assets firms that withdraw equity issues in hot SEO markets. The evidence is consistent with a model in which firms attempt to sell overvalued shares to a market that doesn't react sufficiently to the implications of the action, even if the shares are not actually issued.

JEL Classification: G32, G14