The Announcement Effect of Seasoned Equity Offerings: A Re-examination

Yoon, Pyung Sig

Korean Journal of Financial Studies 2016;45(2):379-415.
Published online April 30, 2016.

Pyung Sig Yoon

유상증자의 공시효과에 관한 재고찰

윤평식

Abstract

This paper examines the short-term announcement effect of 3,161 seasoned equity offerings (SEO), disclosed for the 23-year period of 1991 through 2013. The 3-day cumulative abnormal return (CAR) is -3.69%. The further analysis shows that the wealth effect has changed from positive to negative as of year 2002 and becomes more negative thereafter. Specifically, the 3-day CAR of the first period (1991 to 2001) is 1.56% whereas that of the second period (2002 to 2013) is -6.56%. We also compared the firm characteristics of SEO firms of each period. We found that, compared with SEO firms in the first period, those in the second period have characteristics of inferior operating performance, smaller operating cash flows, and higher debt-equity ratio. In addition, the SEO firms in the second period do not invest in capital expenditures and R&D with as much capital as those in the first period. Our results support the industry sentiment that the stock prices decrease as financially distressed firms raise the capital using SEO. Thus, once the firm announces SEO, the price will drop as it signals negative information to the market.

Key Words: 공시효과,기업특성 변화,유상증자,자본적 지출,정보비대칭,Capital Expenditures,Change in Firm Characteristics,Information Asymmetry,Seasoned Equity Offerings,Short-Term Announcement Effect