The Marketing of Seasoned Equity Offerings
20th Australasian Finance & Banking Conference 2007 Paper
48 Pages Posted: 20 Mar 2007 Last revised: 15 Mar 2010
Date Written: March 10, 2010
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: Suggested Citation