Industry Screening: Evidence from Seasoned Equity Offerings

Abstract

Investors may rely on industries to judge the quality of seasoned equity Offerings. In this paper, we propose an industry screening hypothesis where poorer industrial growth prospects deter lower-quality firms from issuing equity. We expect issuer quality to be negatively associated with industry growth opportunities. Our empirical evidence shows that low-growth industry issuers outperform those from high-growth industries in their announcement period cumulative abnormal returns and post-issue operating performance. These results are robust against alternative explanations. We interpret these findings as evidence for the existence of the industry screening eect.

Keywords: Asymmetric information, adverse selection, industry effect, screening

JEL Classification: G14