Three essays in seasoned equity offerings.
Item
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Title
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Three essays in seasoned equity offerings.
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Identifier
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AAI3231988
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identifier
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3231988
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Creator
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Hutton, Irena.
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Contributor
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Adviser: Armen Hovakimian
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Date
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2006
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Language
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English
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Publisher
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City University of New York.
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Subject
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Economics, Finance
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Abstract
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A significant body of empirical research suggests that indirect costs of equity financing are economically important to serve as a disincentive to issuing equity. There is also evidence indicating that firms engage in strategies to reduce the costs associated with equity financing. However, over the last 30 years, roughly 50 percent of firms raised equity through seasoned offerings more then once. The objective of this dissertation is to examine the connection between indirect costs of seasoned equity offerings (SEOs) and the corporate equity issuance behavior by focusing on the behavior of firms that issue equity frequently. The indirect issue costs are represented by the market reaction to equity issue announcements, offer discount, and the long-term abnormal return.;In the first chapter I provide an overview of recent SEO literature. This chapter provides the context for the subsequent empirical work. In the second chapter I examine the causality between the frequency of seasoned equity issuing activity and indirect costs of equity issuance as measured by the market reaction to issue announcements and offer price discounts. The indirect costs of firms that access the equity market repeatedly decline with the sequence of issues at the sample level. However, the decline in indirect costs is explained by cross-sectional differences in firm characteristics rather than by the frequency of past equity issuing activity. The decision to raise additional equity does not depend on past indirect costs either. In the third chapter, I find that average post-equity-issue long-term returns are unusually low only for the last issue in the sequence of issues by the same firm. The raw returns of the last issues are significantly negative, while the raw returns of non-last issues are significantly positive. Such differences cannot be explained by differences in risk levels. The difference between early and last issues in the sequence is not due to more aggressive use of discretionary accruals or more aggressive timing with respect to pre-issue market conditions. The results are most consistent with the hypothesis that managers use their private information to time equity issues.
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Type
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dissertation
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Source
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PQT Legacy CUNY.xlsx
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degree
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Ph.D.
