Motivations for Public Equity Offers: An International Perspective

46 Pages Posted: 10 Nov 2005  

Woojin Kim

Seoul National University - Business School

Michael S. Weisbach

Ohio State University (OSU) - Department of Finance; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: January 24, 2006

Abstract

This paper examines the extent to which investment financing and market-timing explanations motivate public equity offers. We consider a sample of 16,958 initial public offerings and 12,373 seasoned equity offerings from 38 countries between 1990 and 2003. We provide estimates of the change in each accounting variable for each dollar raised in an equity offer, and for each dollar of internally generated cash. Our estimates imply that firms invest 18.8 cents in R&D and 7.3 cents in capital expenditures for an incremental dollar raised in an equity offer during the year following the offer, rising to 84.8 cents and 14.3 cents when the change is measured over a four-year period. These findings are consistent with one motive for the equity offer being to raise capital for investment. However, firms also hold onto much of the cash they raised, and this fraction is higher when the firm has a high q. In addition, firms are more likely to issue secondary shares, which are usually sold by insiders, when q is high, enabling insiders to benefit personally from potential overvaluation. These results suggest that market timing as well as investment financing is a motivation for equity offers.

Keywords: equity offers, initial public offering, seasoned equity offering, mispricing

JEL Classification: F3, G3, G32

Suggested Citation

Kim, Woojin and Weisbach, Michael S., Motivations for Public Equity Offers: An International Perspective (January 24, 2006). Available at SSRN: https://ssrn.com/abstract=843608 or http://dx.doi.org/10.2139/ssrn.843608

Woojin Kim

Seoul National University - Business School ( email )

Seoul, 151-916
Korea, Republic of (South Korea)
82-2-880-5831 (Phone)

HOME PAGE: http://cba.snu.ac.kr/en/faculty?mode=view&memberidx=60582&major=6

Michael S. Weisbach (Contact Author)

Ohio State University (OSU) - Department of Finance ( email )

2100 Neil Avenue
Columbus, OH 43210-1144
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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