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1、Electronic copy available at: http:/ Firms Time Seasoned Equity Offerings? Evidence from SEOs Issued Shortly after IPOs Yi Jiang* * Henry B. Tipple College of Business, University of Iowa, Iowa City, IA, 52242 (319) 335-0926 yi-jianguiowa.edu Current draft: July 2008 Abstract: I examine whether firm
2、s take advantage of transitory windows of opportunity to time seasoned equity offerings (SEOs). I find firms that experience larger IPO under-pricing, larger stock price run-ups after the IPO, higher Tobins Q and greater capital expenditures tend to return to the market with an SEO earlier than the
3、others. Firms issuing SEOs within six months of IPOs earn 0.74% lower three-day announcement excess returns than those issuing more than six months of IPOs. Firms three-year buy-and-hold abnormal return is positively related to the logarithm of the time between IPO and first SEO. Firms issuing SEOs
4、shortly after IPOs also exhibit worse operating performance. Additional results suggest that investment rates are not higher in firms issuing SEOs shortly after IPOs. In general, I document more severe underperformance of firms conducting SEOs within six months of IPOs. The results are most consiste
5、nt with the hypothesis that managers with private information time the equity issues in ways that benefit existing shareholders. JEL classification: G14, G34, G32. Keywords: Seasoned equity offering; Initial public offering; Market timing; Market feedback I thank Matt Billett, Philip Davies, Jon Gar
6、finkel, Erik Lie, Yimin Qian, Ashish Tiwari and Anand Vijh for helpful comments and suggestions. All errors are my responsibility. Electronic copy available at: http:/ Introduction After the initial public offering (IPO), firms may decide to raise additional capital by issuing seasoned equity offeri
7、ng (SEO). Interestingly, some firms return to the equity issue market with SEO much sooner than the others. For example, Google, Inc. conducted IPO on Aug. 19, 2004 at $85 per share. Less than a year later, Google, Inc. raised $4.18 billion in a secondary offering at the price of $295 per share. Thi
8、s motivates me to examine the following research question: Why do some firms that just conducted their IPOs decide to conduct another round of equity offerings, known as SEOs, rapidly after their IPOs? One explanation is market feedback. Market feedback refers to the hypothesis that high stock retur
9、ns after the IPO signal that the marginal return to the project is high, which, in turn, encourages managers to increase investment by raising additional capital. Jegadeesh, Weinstein and Welch (1993) find firms that that experience larger post-IPO returns tend to issue SEOs within three years of th
10、eir IPOs and their SEOs are larger. They interpret their results as consistent with the market feedback hypothesis. There is another explanation: firms issue SEO shortly after IPO to exploit market timing opportunities. According to the market timing hypothesis (Myers and Majluf (1984), stock offeri
11、ngs are motivated primarily by managers desire to take advantage of an “open financing window” to sell over-valued equity. I test and find support for the market timing/overvaluation hypothesis in explaining firms seasoned equity issue decisions shortly after their IPOs. While early studies have imp
12、roved our understanding of corporate equity issue decisions, very few of them have viewed the issue from the perspective of the time between IPO and the first SEO. This paper attempts to fill this void by focusing on a group of firms that return to the equity issue market shortly after their IPOs. S
13、pecifically, my study builds on the differences in the length of time since IPO at the date of SEO. This paper discusses both the market feedback and market overvaluation explanations and conduct further investigation of the motivation and consequences of the timing behavior of SEO firms. 2My focus
14、on SEOs issued shortly after IPOs is motivated by several considerations. First, firms issuing SEOs shortly after IPOs are an important group of firms. My empirical results suggest the SEO anomaly is stronger in this set of firms. This special group of firms provides us with a direct way to test fir
15、ms motivation to issue SEOs. Specifically, I address the following research questions: 1) Why do firms decide to conduct SEOs rapidly after IPOs? Is it due to good investment opportunities, or is it because these firms are timing equity issues in ways that benefit existing shareholders? 2) How does
16、the market react to the announcement of SEOs rapidly after IPOs? 3) What is the long-run stock price performance of firms conducting SEOs shortly after IPOs? 4) What is the operating performance of these firms? 5) Do these firms have higher investments rates? A thorough study of the group of firms that return to the equity issue market shortly after IPOs will provide us with additional evidence as to whether fi
