Seasoned equity offerings and the short‐ and long‐run performance of initial public offerings in the UK

Abstract

In contrast to the US practice, rights issues is the predominant method of raising additional equity capital in the London market. the UK evidence for the period 1980-1991 provides no support to the hypothesis that IPO firms deliberately underprice to signal their quality and facilitate subsequent seasoned equity offerings. the level of initial returns is related neither to the size of the issue nor to the price response at the announcement of a rights issue. the results demonstrate, however, that firms with higher first day returns are quicker in returning to the market for additional equity capital. There is also strong evidence to suggest that the announcement of a seasoned equity offering follows a period of significant rises in the stock prices of reissuing firms. Such gains are, however, dissipated quickly in the 18 months after the announcement of the seasoned equity offering. the level of underperformance is particularly pronounced for firms that raised relatively small subsequent amounts of capital in relation to funds raised at the initial offering. Thus, the paper documents a pattern of post-issue behaviour which is fundamentally similar for both unseasoned and seasoned equity offerings. Copyright Blackwell Publishers Ltd. 1995.

Announcement Effects of Seasoned Equity Offerings in China

“…A stock price decline has been observed by Hansen (1989) and Eckbo and Masulis (1992) in US. In United Kingdom 2-day excess return of -1.3% (Levis, 1995) and -1.88% (Slovin et al, 2000) has been observed. A negative excess stock returns has also been observed in France (Gajewski and Ginglinger, 1998), New Zealand (Marsden, 2000), Netherlands (Kabir and Roosenboom, 2003) and Hong Kong (Ching et al, 2001).…”

Long-horizon event studies and event firm portfolio weights: Evidence from U.K. rights issues re-visited

“…For example, Loughran and Ritter (1995) find postissue underperformance of almost 10% per year, over a five-year period, between SEO issuers and similar non-issuing firms in the U.S. Additional evidence of underperformance is reported in Spiess and Affleck-Graves (1995), Jegadeesh (2000) and Loughran and Ritter (2000). Using Japanese and U.K. market data, Cai and Loughran (1998), Kang, Kim, and Stulz (1999), Levis (1995), and Suzuki (2000) also find underperformance following SEOs. However other authors like Brav, Geczy, and Gompers (2000), Mitchell and Stafford (2000), and Eckbo, Masulis, and Norli (2001) find little or no evidence of underperformance.…”

“…For placing firms, the equal-weighted and value-weighted BHARs are À 3.29% and À 7.15%, respectively. Similar to the U.S. studies, Ho (2005) also finds that the calendar-time abnormal returns are smaller and Spiess and Affleck-Graves (1995) 1975-19891247 À6.10 a,# NA Loughran and Ritter (1995) 1970-1990 3702 À9.10 a,# NA Loughran and Ritter (2000) 1973-1996 6461 À5.64 b *** À 3.84 b *** Brav et al (2000) 1975-1992 3775 À3.90 a,# À 3.40 a,# À4.44 b *** À 1.68 b À2.28 c À 2.28 c ** Eckbo et al (2000) 1964-1995 3315 À4.80 a *** À 2.20 a À1.44 b À2.04 b Jegadeesh (2000) 1970-1993 2992 À4.90 a ** NA À5.40 b *** NA À3.72 c *** NA Mitchell and Stafford (2000) 1961-1993 4439 À2.70 a *** À 1.10 a À3.96 b *** À 0.36 b Panel B Japanese data Cai and Loughran (1998) 1971-19921389 À3.50 a ** NA Kang et al (1999) 1980-1988 888 À9.80 a *** NA Panel C U.K. data Levis (1995Levis ( ) 1980Levis ( -1988 À15.10 d *** NA Suzuki (2000) 1991-1996 689 À11.50 a *** NA This table provides brief details of selected prior papers that study the long-horizon performance of firms after issuing SEOs. It provides details about the sample period of the study and the type of weighting scheme used to construct portfolios.…”

“…Using U.K. data on rights issues, Levis (1995) is the first to study the long-run performance of U.K. SEOs. He finds that for firms that have had rights issues show negative abnormal returns of À 15.10% in the 18 months following the announcement.…”

“…The results for the U.K. studies (Levis, 1995) are for 18-month CAR for the post-offer period, and in Suzuki (2000) are based on 2-year BHARs. Buy-and-hold abnormal returns are based on the size/book-to-market matched firms/portfolios.…”