eThesis - School of Business electronic theses

» hse_ethesis_12220.pdf   size:2 MB (1924373)

PURPOSE OF THE STUDY The purpose of the thesis is to provide new evidence on seasoned equity offerings (SEO) in general, and to address the partially lacking understanding of the SEOs in the UK. This thesis contributes to the ongoing discussion on causes of SEOs by being one of the first studies to investigate the macro level determinants. The thesis also addresses the question at the micro level by comparing SEO firms to firms who choose to issue debt instead. Finally, the thesis examines the firm-specific pre-issue factors that contribute to the abnormal stock market performance of the issuers around the announcement of an SEO and in the long-term following an offering.

DATA The data on seasoned equity offerings employed in the thesis is sourced from Dealogic and consists of UK seasoned equity offerings during period 1994-2008, while the total number of SEOs amounts to 2,670. At the firm-specific level, the availability of various data items shortens the sample period to range from 1999 to 2007, while the total number of events amounts to 543. Data on various firm characteristics and accounting items is retrieved from Thomson Financial Worldscope, and data on analyst recommendations from Thomson Financial I/B/E/S history. Finally, data on stock prices, market indexes, interest rates and various economic fundamentals are from Datastream.

RESULTS Results indicate that at the macro level, firms choose to conduct an SEO following periods of high stock market returns, and at times of rapid future sales growth among the listed firms, suggesting that market timing and demand for capital hypotheses of equity issuance hold. At the micro level, firms choose to issue seasoned equity for much of the same reasons, while in addition, information asymmetry seems contribute to the decision. Market timing, and to a lesser extent, demand for capital proxies have a positive linkage with SEO announcement effect. The findings also indicate that firms exploit window of opportunity to issue equity, since high volume period issuers undergo higher abnormal returns than low volume period issuers. In the long-term, the UK SEOs underperform in general, while the abnormal returns using market-to-book and firm size matched firms as the benchmark are less negative than suggested in the previous literature on the UK SEOs. Finally, the findings indicate that firms with ex ante demand for capital do not suffer from long-term underperformance, while market timers and firms with large issue sizes appear to be poor long-term investments.