Do Firms Issue more equity when markets are more liquid?

René Stulz, Dimitrios Vagias and Mathijs van Dijk ()

No 19229, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper investigates how public equity issuance is related to stock market liquidity. Using quarterly data on IPOs and SEOs in 36 countries over the period 1995-2008, we show that equity issuance is significantly and positively related to contemporaneous and lagged innovations in aggregate local market liquidity. This relation survives the inclusion of proxies for market timing, capital market conditions, growth prospects, asymmetric information, and investor sentiment. Liquidity considerations are as important in explaining equity issuance as market timing considerations. The relation between liquidity and issuance is driven by the quarters with the greatest deterioration in liquidity and is stronger for IPOs than for SEOs. Firms are more likely to carry out private instead of public equity issues and to postpone public equity issues when market liquidity worsens. Overall, we interpret our findings as supportive of the view that market liquidity is an important determinant of equity issuance that is distinct from other determinants examined to date.

JEL-codes: F30 G15 G32 (search for similar items in EconPapers)
Date: 2013-07
New Economics Papers: this item is included in nep-mst
Note: CF IFM
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Citations: View citations in EconPapers (4)

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Working Paper: Do Firms Issue More Equity When Markets Are More Liquid? (2013)
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