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- Title
SEO Risk Dynamics.
- Authors
Carlson, Murray; Fisher, Adlai; Giammarino, Ron
- Abstract
We theoretically and empirically investigate firm-level risk dynamics around seasoned equity offerings (SEOs). Empirically, beta increases before SEOs and decreases gradually thereafter. Using real options theory, commitment-to-invest generates a gradual post-issuance beta decline whereas instantaneous investment and time-to-build do not. In a behavioral theory, systematic mispricing can cause increasing pre-issuance and decreasing post-issuance risk but idiosyncratic mispricing cannot. In the empirical cross-section, investment, own-firm runup, SEO proceeds, and primary issuance—associated with the real options theory—predict beta declines. Sentiment proxies have weaker effects in the full sample, but are significant in a post-1996 subsample. SEOs coincide with low firm- and market-volatility, suggesting volatility-timing in corporate decisions.
- Subjects
SEASONED equity offerings; VALUATION of corporations; RIGHTS offerings; RISK; BETA (Finance); MARKET volatility; STOCK prices
- Publication
Review of Financial Studies, 2010, Vol 23, Issue 11, p4026
- ISSN
0893-9454
- Publication type
Article
- DOI
10.1093/rfs/hhq083