SEOs in a ‘Hot Market’: evidence of timing

Abstract

This study analyses the financing decision of raising equity through a rights issue in a developing market, the Athens Stock Exchange (ASE), during a particular emerging period. Specifically, this study examines the information content of accounting items derived from published financial statements the year prior to a 'hot' period in explaining post-issue stock price performance. We are using data from listed companies in the ASE during the 'hot period' of year 1999 when stock prices burst and an unusual large number of seasoned equity offerings (SEOs) took place. Our empirical results do not verify a statistically significant relationship between discretionary accruals in the year preceding the issue and postissue stock returns. Moreover, historical accounting items do not provide value relevant information and cannot be used to explain post-issue stock returns. Market trend prior to the issuing is proved to be the only significant variable in explaining post SEO returns. The overall findings are in line with the market timing theory which claims that managers just time their equity issues in an upward moving market in order to increase the offering proceeds.

Whatwerethey thinking? Reports from interviews with senior finance executives in the lead-up to the GFC

“…This is consistent with evidence that managers' decisions can be subject to moral hazard, such as optimistic biases from perceptions of a 'hot market' (Cohen et al, 2007).…”

The impact of COVID‐19 on seasoned equity offering: Evidence from China

“…Column (1) of Table 12 shows that firms located in more severely affected provinces are less likely to conduct SEOs than their counterparts, which supports Hypotheses 1(a) and 2(a). In addition, Columns (2) and (3) of Table 12 show that SEO announcements are supported by higher CSR scores and more accounting conservative practices Bo et al (2011) state that Chinese SEOs are mostly motivated by timing the market, which is consistent with the findings of the trend of SEO behaviors around the world (Baker & Wurgler, 2002;Cohen et al, 2007; T A B L E 9 The impact of SEO announcement on firms' market value during the pandemic based on an alternative event window and investment uncertainties in the market, which make these firms' advantage of market overvaluation hardly exploited. To confirm whether market timing is the major reason caused SEO announcements during the pandemic, we conduct four more estimations reported in Table 13, In Column (1) of Table 13, we use overvaluation as the dependent variable and find out that the firms from more severely affected areas are 7.1% less likely to be overvalued, compared to last year.…”

“…Because the COVID-19 pandemic has made a significant impact on the information environment of the listed firms, we focus on SEO announcement effects and underpricing to investigate the impact of the COVID-19 pandemic on the affected firms based on the perceptions from market investors and the cost of raising equity capital. Fourth, Bo et al (2011) indicate that Chinese SEOs are mostly motivated by market timing, rather than financing for investment and growth, which is also consistent with the findings of trend of SEO behaviors around the world (Baker & Wurgler, 2002;Cohen, Papadaki, & Siougle, 2007;DeAngelo, DeAngelo, & Stulz, 2010). Their results show that Chinese listed firms issue SEOs when there are opportunities to take advantage of market overvaluation.…”

“…Column (1) of Table 12 shows that firms located in more severely affected provinces are less likely to conduct SEOs than their counterparts, which supports Hypotheses 1(a) and 2(a). In addition, Columns (2) and (3) of Table 12 show that SEO announcements are supported by higher CSR scores and more accounting conservative practices Bo et al ( 2011 ) state that Chinese SEOs are mostly motivated by timing the market, which is consistent with the findings of the trend of SEO behaviors around the world (Baker & Wurgler, 2002 ; Cohen et al, 2007 ; DeAngelo et al, 2010 ). Their results indicate that Chinese listed firms issue SEOs when there are opportunities to take advantage of market overvaluation.…”

Auditor awareness of earnings management

“…We also exclude initial public offerings (IPOs; 21) from the year 2002 since recent empirical evidence (Koumanakos and Tzelepis, 2004;Roosenboom et al, 2003;Teoh et al, 1998) indicate that IPOs tend to manipulate their earnings upward in the period around the listing. However, we do not eliminate from our analysis Greek listed firms engaged in merges and acquisitions (M&A) or seasoned equity offerings (SEOs) taking place in the period under consideration because Greek empirical studies (Cohen et al, 2004;Koumanakos et al, 2005) indicate no evidence of earnings-management adoption around these events. Finally, elimination of firms with incomplete data and outliers leaves us with an event sample of 58 suspect firms as opposed to 232 non-suspect firms, which comprise our control sample.…”