The Marketing of Seasoned Equity Offerings

20th Australasian Finance & Banking Conference 2007 Paper

48 Pages Posted: 20 Mar 2007 Last revised: 15 Mar 2010

See all articles by Xiaohui Gao Bakshi

Xiaohui Gao Bakshi

Fox School of Business, Temple University

Jay R. Ritter

University of Florida - Department of Finance, Insurance and Real Estate

Date Written: March 10, 2010

Abstract

In an accelerated seasoned equity offering (SEO), an issuer foregoes the investment bank’s marketing efforts in return for a lower fee. To explain why many issuing firms choose a higher cost fully marketed offer, we posit that the marketing effort flattens the issuer’s short-run demand curve. Alternatively stated, with a fully marketed offer, the issuer is paying investment bankers to create demand, making the elasticity of demand at the time of issuance an endogenous choice variable. Empirical analysis shows that both the pre-issue elasticity of the issuing firm’s demand curve and the offer size are important determinants of the offer method choice. We find evidence of a large transitory increase in the elasticity of demand for issuers conducting fully marketed SEOs.

Keywords: Marketing of securities, Follow-on offerings, Seasoned equity offerings, Bookbuilding

JEL Classification: G14, G24, G32

Suggested Citation

Gao, Xiaohui and Ritter, Jay R., The Marketing of Seasoned Equity Offerings (March 10, 2010). 20th Australasian Finance & Banking Conference 2007 Paper . Available at SSRN: https://ssrn.com/abstract=972709 or http://dx.doi.org/10.2139/ssrn.972709

Xiaohui Gao (Contact Author)

Fox School of Business, Temple University ( email )

Philadelphia, PA 19122
United States

Jay R. Ritter

University of Florida - Department of Finance, Insurance and Real Estate ( email )

P.O. Box 117168
Gainesville, FL 32611
United States
(352) 846-2837 (Phone)
(352) 392-0301 (Fax)

HOME PAGE: http://bear.cba.ufl.edu/ritter

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