The Effect of Demand for Shares on the Timing and Underpricing of Seasoned Equity Offers

Vincent J. Intintoli, Shrikant P. Jategaonkar, Kathleen M Kahle

Research output: Contribution to journalArticle

5 Citations (Scopus)

Abstract

Despite high levels of asymmetry of information, firms that issue seasoned equity offerings (SEOs) within a year of their initial public offering (IPO) (follow-on SEOs) are able to offer shares at a lower discount as compared to more mature firms. We provide evidence that this seeming contradiction can be explained by a very high degree of demand for the follow-on offering. We find that the likelihood of issuing a follow-on SEO is significantly related to the level of institutional demand and that discounts are lower for follow-on SEOs in which institutional demand is high. We also consider the joint effect of cash holdings and follow-on SEOs on discounts since firms that have recently gone public tend to hold high levels of cash. Underpricing is higher for firms with elevated preoffer levels of cash, which is consistent with market timing predictions. However, this relation is mitigated for both follow-on SEOs and issues that also have high share demand.

Original languageEnglish (US)
Pages (from-to)61-86
Number of pages26
JournalFinancial Management
Volume43
Issue number1
DOIs
StatePublished - 2014

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Underpricing
Seasoned equity offer
Seasoned equity offerings
Discount
Cash
Cash holdings
Initial public offerings
Prediction
Equity issues
Market timing
Asymmetry of information

ASJC Scopus subject areas

  • Finance
  • Accounting
  • Economics and Econometrics

Cite this

The Effect of Demand for Shares on the Timing and Underpricing of Seasoned Equity Offers. / Intintoli, Vincent J.; Jategaonkar, Shrikant P.; Kahle, Kathleen M.

In: Financial Management, Vol. 43, No. 1, 2014, p. 61-86.

Research output: Contribution to journalArticle

Intintoli, Vincent J. ; Jategaonkar, Shrikant P. ; Kahle, Kathleen M. / The Effect of Demand for Shares on the Timing and Underpricing of Seasoned Equity Offers. In: Financial Management. 2014 ; Vol. 43, No. 1. pp. 61-86.
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