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- Title
The Effect of Demand for Shares on the Timing and Underpricing of Seasoned Equity Offers.
- Authors
Intintoli, Vincent J.; Jategaonkar, Shrikant P.; Kahle, Kathleen M.
- Abstract
Despite high levels of a symmetry of information, firms that issue seasoned equity offerings (SEOs) within a year of their initial public offering (IPO) (follow-on SEOs) are able to offer shares at a lower discount as compared to more mature firms. We provide evidence that this seeming contradiction can be explained by a very high degree of demand for the follow-on offering. We find that the likelihood of issuing a follow-on SEO is significantly related to the level of institutional demand and that discounts are lower for follow-on SEOs in which institutional demand is high. We also consider the joint effect of cash holdings and follow-on SEOs on discounts since firms that have recently gone public tend to hold high levels of cash. Underpricing is higher for firms with elevated preoffer levels of cash, which is consistent with market timing predictions. However, this relation is mitigated for both follow-on SEOs and issues that also have high share demand.
- Subjects
ECONOMIC demand; STOCKS (Finance); ECONOMIC impact; SEASONED equity offerings; INFORMATION theory; INSTITUTIONAL ownership (Stocks)
- Publication
Financial Management (Wiley-Blackwell), 2014, Vol 43, Issue 1, p61
- ISSN
0046-3892
- Publication type
Article
- DOI
10.1111/fima.12020