Examining bank SEOs: Are offers made by undercapitalized banks different?

Krishnan, C. N. V.; Ergungor, O. Emre; Laux, Paul A.; Singh, Ajai K.; Zebedee, Allan A.

doi:10.1016/j.jfi.2009.02.002

Cited by 31 publications

(19 citation statements)

References 50 publications

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“…In fact, Furlong and Keeley () argue that by issuing additional common stock a financial institution reduces the incentive of bank managers to increase asset risk and increases the size of the cushion available to absorb losses. On the other hand, banks are also often considered opaque (Krishnan et al ), which could lead to more negative announcement effects.…”

Section: Factors Explaining Wealth Effects Of Seosmentioning

confidence: 99%

Wealth Effects of Seasoned Equity Offerings: A Meta‐Analysis

2018

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We use meta‐analysis to review studies on announcement effects associated with seasoned equity offerings. Our sample includes 199 studies from 38 leading finance journals and Social Sciences Research Network working papers. The studies cover different countries, but the US is particularly well‐represented with 131 studies. We find a statistically significant mean cumulative abnormal return of −0.98%. Abnormal returns are more negative for equity issues by US companies and for non‐US rights issues and are less negative for private placements. In addition, wealth effects are more negative when the proceeds are used for debt reduction, when the SEO is issued shortly after IPO, and for issues by nondividend‐paying companies and industrial companies. We identify important avenues for future research.

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Section: Factors Explaining Wealth Effects Of Seosmentioning

confidence: 99%

Wealth Effects of Seasoned Equity Offerings: A Meta‐Analysis

2018

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“…Following the previous researches (Asquit & Mullins, 1986, Choe et al, 1993, Krishnan et al, 2010, Bolognesi & Gallo, 2013and Li et al, 2016, we performed a multivariate regression having CARs as the dependent variable and several independent variables able to investigate the possible causes underlying the negative CAR at the communication date of the equity issue characteristics. We are interested in understanding whether the dilutive effect contributes to explain the more negative CAR when the characteristics of the capital increase are communicated.…”

Section: Methodsmentioning

confidence: 99%

“…Some hypotheses have been developed by which the market reaction to the announcement of a capital increase is less favorable to banking institutions because of their complex activity and the opacity of their financial assets (Haggard & Howe, 2012;Jones et al, 2012). According to Krishnan et al (2010), the level of opacity causes an increased difficulty in the estimation of the banking capital increases, which leads to a higher perception of the overvaluation of the company when the capital increases are announced. Li et al (2016) study the different market reactions in the U.S. market distinguishing between banking and non-banking sectors.…”

Section: Literature Reviewmentioning

confidence: 99%

Equity Rights Issue and Dilutive Effect: Evidence from Italian Listed Companies

Martino¹,

Busatto²

2018

IBR

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This article studies the stock price reaction to Seasoned Equity Offerings (SEOs) through the right issue technique, for Italian listed companies in the period between 2007 and 2016. A few days before the starting date of the capital increase operation, investors are provided with a complete information set of the final characteristics of the equity offerings. The study investigates whether this further information is price sensitive. An event study analysis is performed around two price sensitive dates: the “announcement date” of the equity issue and the “communication date” of its final characteristics. It also focuses on the reasons underlying the offer and on the industry effect. The findings show a significant negative abnormal return at the communication date for the full sample and for companies collecting financial resources for “Corporate Finance Transaction”, for "Capital Adequacy" and for “Restructuring”. A negative market reaction for all sectors is observed as well. Eventually, the article examines the possible causes underlying the negative stock price reaction at the communication date. The results suggest that the dilutive effect is the main explanation to the stock price overreaction.

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“…13 This paper examines private and government issuances of bank capital around the recent financial crisis and examines how government recapitalization affected 10 Since then, studies have examined bank issuance of significant amounts of trust preferred securities (TPS) as a means of increasing Tier 1 regulatory capital (Benston et al, 2003;Harvey et al, 2003;Boyson et al, 2014). 11 Krishnan et al (2010) examine bank market reactions to bank SEO issuances over the same period showing undercapitalized and well-capitalized banks experience similar and significantly negative stock price reactions to SEO announcements. 12 In concluding remarks, Berger et al (2008, p. 147) observed, "… whether or not BHCs would use new shares to actively offset losses remains an open question…."…”

Section: Contribution To the Literaturementioning

confidence: 99%

Raising Capital When the Going Gets Tough: U.S. Bank Equity Issuance from 2001 to 2014

Black

Floros

Sengupta

2016

RWP

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We analyze equity issuance by publicly-traded U.S. banks during 2001-2014 through exchanges (SEOs), private placements (PIPEs), and TARP. Equity markets were important for bank recapitalization in the crisis, when SEO and PIPE issuance peaked. We find that bank characteristics predict issuance whereas trading indicators influence issuance type. Large, well-capitalized banks with quality loans were more likely to issue. PIPEs served weaker, capital-constrained banks, while SEOs and TARP were selective. Bank illiquidity was another incentive to issue. Banks with lower trading activity and wider spreads were more likely to issue TARP over SEOs. Our findings suggest TARP aided private issuance, which was used to repay TARP. JEL Codes: G21, G28, G32

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Examining bank SEOs: Are offers made by undercapitalized banks different?

Cited by 31 publications

References 50 publications

Wealth Effects of Seasoned Equity Offerings: A Meta‐Analysis

Wealth Effects of Seasoned Equity Offerings: A Meta‐Analysis

Equity Rights Issue and Dilutive Effect: Evidence from Italian Listed Companies

Raising Capital When the Going Gets Tough: U.S. Bank Equity Issuance from 2001 to 2014

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