Seasoned Equity Offerings and Stock Price Crashes

2015 ◽  
Author(s):  
Rodney D Boehme ◽  
Veljko Fotak ◽  
Anthony D. May
Keyword(s):  
Stock Price ◽  
Seasoned Equity Offerings ◽  
Equity Offerings

scholarly journals The Effects of Operational Structure Change on Performance after Seasoned Equity Offerings

2017 ◽  
Author(s):  
Chihyoun Ahn ◽  
Mi-Ok Kim ◽  
Hyung-Rok Jung
Keyword(s):  
Sustainable Development ◽  
Stock Price ◽  
Operating Performance ◽  
Seasoned Equity Offerings ◽  
Structure Change ◽  
Equity Offerings ◽  
Price Response ◽  
Sustainability Strategy ◽  
Rate Of Increase ◽  
Operational Structure

Sustainability is directly linked to firms’ survival in competitive markets. To survive, firms need extra capital, and seasoned equity offerings (SEOs) are one sustainability strategy. Additional resources from SEOs leads to changes in firms’ operational structure, which brings future sustainability. This study investigates whether there is sustainability in firms’ operational structure and the effects of sustainable development on operational performance and market reaction. We measure the operational structure change of firms as three proxies: 1) the rate of increase in the number of operating segments, 2) the Berry–Herfindahl index using the ratio of sales of each operating segment out of total sales, and 3) the size of net investment in plant and equipment. Our results show that operational structure change has a statistically significant and positive correlation with long-term operating performance. In addition, there is no significant stock price response at first, but the operating performance in the next term is perceived as a favorable factor after 3 years. The results show that there are different responses in the stock market toward operational structure change. The empirical results confirm that firms with SEO have sustainable development in operational structure and that markets recognize firms’ sustainability strategy arising from SEOs.

Liquidity, Volatility and Stock Price Adjustment: Evidence from Seasoned Equity Offerings in an Emerging Market

2005 ◽  
Vol 08 (01) ◽  
pp. 31-51 ◽  
Author(s):  
Chia-Cheng Ho ◽  
Chin-Chuan Lee ◽  
Chien-Ting Lin ◽  
C. Edward Wang
Keyword(s):  
Stock Price ◽  
Direct Evidence ◽  
Practical Implication ◽  
Emerging Market ◽  
Seasoned Equity Offerings ◽  
Price Adjustment ◽  
Equity Offerings ◽  
Stock Return Volatility ◽  
Using Data ◽  
Stock Price Adjustment

Using data from the Taiwanese stock market, an emerging market, this paper documents positive changes in liquidity and volatility around seasoned equity offerings (SEOs). These findings are consistent with the uncertain signal hypothesis that investors with diverse views on the information content of SEOs are likely to induce larger trading activity and subsequent higher stock return volatility. We also provide direct evidence that changes in liquidity is positively associated with stock price adjustment. However, the relations among liquidity, volatility and price movements appear to rely on how SEOs are conducted. A practical implication is that managers may influence liquidity and stock price movement through their choice of SEOs issuing methods.

scholarly journals The Effects of Operational Structure Change on Performance after Seasoned Equity Offerings

2017 ◽  
Author(s):  
Chihyoun Ahn ◽  
Mi-Ok Kim ◽  
Hyung-Rok Jung
Keyword(s):  
Sustainable Development ◽  
Stock Price ◽  
Operating Performance ◽  
Seasoned Equity Offerings ◽  
Structure Change ◽  
Equity Offerings ◽  
Price Response ◽  
Sustainability Strategy ◽  
Rate Of Increase ◽  
Operational Structure

Sustainability is directly linked to firms’ survival in competitive markets. To survive, firms need extra capital, and seasoned equity offerings (SEOs) are one sustainability strategy. Additional resources from SEOs leads to changes in firms’ operational structure, which brings future sustainability. This study investigates whether there is sustainability in firms’ operational structure and the effects of sustainable development on operational performance and market reaction. We measure the operational structure change of firms as three proxies: 1) the rate of increase in the number of operating segments, 2) the Berry–Herfindahl index using the ratio of sales of each operating segment out of total sales, and 3) the size of net investment in plant and equipment. Our results show that operational structure change has a statistically significant and positive correlation with long-term operating performance. In addition, there is no significant stock price response at first, but the operating performance in the next term is perceived as a favorable factor after 3 years. The results show that there are different responses in the stock market toward operational structure change. The empirical results confirm that firms with SEO have sustainable development in operational structure and that markets recognize firms’ sustainability strategy arising from SEOs.

scholarly journals CEO-shareholder incentive alignment around SEOs

2015 ◽  
Vol 41 (1) ◽  
pp. 45-66
Author(s):  
Yilei Zhang ◽  
Yi Jiang
Keyword(s):  
Stock Price ◽  
Wealth Effect ◽  
Seasoned Equity Offerings ◽  
Equity Offerings ◽  
Equity Financing ◽  
Compensation Policy ◽  
Incentive Alignment ◽  
Content Type ◽  
Financing Decisions ◽  
Long Run

Purpose – The purpose of this paper is to examine CEO wealth changes around seasoned equity offerings (SEOs) to explore the shareholder-manager incentive alignment in major corporate equity financing decisions. Design/methodology/approach – The authors decompose CEO wealth into three major components: price effect, board compensation grant, and CEO’s own portfolio adjustment. The authors then compare SEO-event sample vs non-event samples; and evaluate the dynamic and long-run CEO wealth effect. Findings – The authors find when market reacts negatively to SEO announcement leading to losses in CEO’s existing firm-related wealth, CEO gets additional grants to offset the losses. Although this appears to be a rent-seeking activity, the authors find that the additional grants are mainly in the form of stock options which would have no value if stock price failed to pick up in the future. In this sense, the additional grants align the interests between shareholders and managers. Consistent with this argument, the authors show that the additional grants motivate CEOs to promote the stock performance, benefiting themselves as well as shareholders in the long-run. Originality/value – The study explicitly calculates the contribution of each wealth component to CEO total wealth effect. The results improve the understanding of CEO compensation policy change after major corporate event and contribute to the literature of the optimality explanation of prevailing compensation policy.

scholarly journals Seasoned Equity Offerings and Stock Price Crash Risk

2020 ◽  
Vol 9 (4) ◽  
pp. 131-146
Author(s):  
Rodney D. Boehme ◽  
Veljko Fotak ◽  
Anthony May
Keyword(s):  
Stock Price ◽  
Seasoned Equity Offerings ◽  
Bad News ◽  
Good News ◽  
Crash Risk ◽  
Equity Offerings ◽  
Jump Risk ◽  
Large Sample ◽  
Secondary Shares ◽  
Robust Evidence

Using a large sample of U.S. firms during 1987–2011, we find robust evidence that the issuance of seasoned equity is associated with abnormally high future stock price crash risk. The association between seasoned equity offerings and crash risk is stronger among offerings that involve the sale of secondary shares (existing shares sold by insiders or large blockholders). We also find that recent seasoned equity issuers are far less likely to experience sudden positive price jumps relative to firms that have not recently issued equity. Our findings of elevated crash risk and diminished jump risk, when taken together, are consistent with a heightened propensity for firms to hoard bad news but not good news when issuing equity.

Price Pressure and Overnight Seasoned Equity Offerings

2018 ◽  
Vol 53 (2) ◽  
pp. 837-866 ◽  
Author(s):  
Matthew T. Gustafson
Keyword(s):  
Stock Price ◽  
Seasoned Equity Offerings ◽  
Equity Offerings ◽  
Price Pressure ◽  
Price Decline ◽  
Issue Selling

Between 2009 and 2014, 75% of seasoned equity offerings (SEOs) were announced and issued overnight, compared to 27% between 2000 and 2008. Overnight issuers obtain a higher SEO offer price because they experience more favorable pre-offer returns. Consistent with these favorable returns being due to the avoidance of pre-issue selling pressure, non-overnight issuers experience a 2.5% pre-issue stock-price decline that reverses within 7 days. This post-issue reversal is increasing in SEO offer size and bigger following large pre-issue price declines. In contrast, returns following overnight offerings are less positive and unrelated to SEO offer size or pre-issue returns.

Stock derivatives and seasoned equity offerings

2022 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Robert Martin Hull ◽  
Sungkyu Kwak ◽  
Rosemary Walker
Keyword(s):  
Stock Returns ◽  
Stock Price ◽  
Stock Options ◽  
Seasoned Equity Offerings ◽  
Stock Option ◽  
Fiscal Year ◽  
Equity Offerings ◽  
Past Performance ◽  
Content Type ◽  
Run Up

PurposeThe article aims to explore if stock derivative types (stock options and stock warrants) are associated with stock returns for firms undergoing seasoned equity offerings (SEOs).Design/methodology/approachThe authors regress stock returns against stock derivatives for periods around SEO announcements with standard errors clustered at the month level.FindingsThe authors find that lower stock derivatives holdings for the fiscal year after the SEO are associated with superior pre-SEO returns. This can be explained by owners exercising their derivatives to capitalize on the pre-SEO price run-up. The authors find that greater stock option holdings by insiders for the fiscal year after the SEO are associated with superior post-SEO returns for up to ten years after the SEO announcement. This new finding does not hold for stock warrants.Research limitations/implicationsStock derivatives are supplied by Capital IQ. Given their description, the authors infer that stock options are owned largely by insiders. Thus, the insider conclusions for stock options depend on this implication.Practical implicationsStock options and stock warrants can be used strategically to reward stock derivative owners of strong performing firms for past performance. Stock options can be used to motivate insiders (primarily key executives) to achieve superior future performance.Originality/valueThis study is unique in comparing the influence of holdings for stock options and stock warrants on stock price performance around SEOs. The authors show that the sign of the association depends on whether the test includes pre-SEO periods.

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