Fundamentals, market timing, and seasoned equity offerings

Description

Firms conduct SEOs to resolve a near-term liquidity squeeze, and not primarily to exploit market timing opportunities. Without the SEO proceeds, 62.6% of issuers would have insufficient cash to implement their chosen operating and non-SEO financing decisions the year after the SEO. Although the SEO decision is positively related to a firm's market-to-book (M/B) ratio and prior excess stock return and negatively related to its future excess return, these relations are economically immaterial. For example, a 150% swing in future net of market stock returns (from a 75% gain to a 75% loss over three years) increases by only 1% the probability of an SEO in the immediately prior year. Strikingly, most firms with quintessential "market timer" characteristics fail to issue stock and a non-trivial number of mature firms do issue stock, with current and former dividend payers raising more than half of all issue proceeds.

Subjects

Series Statement

• NBER working paper series -- no. 13285.
• Working paper series (National Bureau of Economic Research) -- working paper no. 13285.

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Other Editions

• Fundamentals, market timing, and seasoned equity offeringsNational Bureau of Economic Research2007-01-01
• Fundamentals, market timing, and seasoned equity offeringsElectronic resourceNational Bureau of Economic Research2007-01-01