SEO Risk Dynamics

Review of Financial Studies, 23 (11), 4026-4077

48 Pages Posted: 21 Mar 2007 Last revised: 7 May 2013

See all articles by Murray Carlson

Murray Carlson

University of British Columbia (UBC) - Sauder School of Business

Adlai J. Fisher

University of British Columbia (UBC) - Sauder School of Business

Ron Giammarino

University of British Columbia (UBC) - Sauder School of Business

Multiple version iconThere are 2 versions of this paper

Date Written: November 1, 2010

Abstract

We theoretically and empirically investigate firm-level risk dynamics around seasoned equity offerings. Empirically, beta increases before SEOs and decreases gradually thereafter. Using real options theory, commitment-to-invest generates a gradual post-issuance beta decline whereas instantaneous investment and time-to-build do not. In a behavioral theory, systematic mispricing can cause increasing pre-issuance and decreasing post-issuance risk but idiosyncratic mispricing cannot. In the empirical cross-section, investment, own-firm runup, SEO proceeds, and primary issuance - associated with the real options theory - predict beta declines. Sentiment proxies have weaker effects in the full sample, but are significant in a post-1996 subsample. SEOs coincide with low firm- and market-volatility, suggesting volatility-timing in corporate decisions.

Keywords: Seasoned Equity Offering, Real Options, Dynamic Risk, Dynamic Beta, Investment

JEL Classification: G31, G32

Suggested Citation

Carlson, Murray D. and Fisher, Adlai J. and Giammarino, Ronald, SEO Risk Dynamics (November 1, 2010). Review of Financial Studies, 23 (11), 4026-4077. Available at SSRN: https://ssrn.com/abstract=970837 or http://dx.doi.org/10.2139/ssrn.970837

Murray D. Carlson

University of British Columbia (UBC) - Sauder School of Business ( email )

2053 Main Mall
Vancouver, BC V6T 1Z2
Canada
604-822-8358 (Phone)

Adlai J. Fisher

University of British Columbia (UBC) - Sauder School of Business ( email )

2053 Main Mall
Vancouver, BC V6T 1Z2
Canada
604-822-8331 (Phone)
604-822-4695 (Fax)

HOME PAGE: http://finance.sauder.ubc.ca/~fisher

Ronald Giammarino (Contact Author)

University of British Columbia (UBC) - Sauder School of Business ( email )

2053 Main Mall
Vancouver BC V6T 1Z2
Canada
604-822-8357 (Phone)
604-822-4695 (Fax)

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