On the Conditioning of the Financial Market’s Reaction to Seasoned Equity Offerings

Onur Arugaslan () and Louise Miller ()
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Onur Arugaslan: Department of Finance and Commercial Law, Haworth College of Business, Western Michigan University, Kalamazoo, Michigan 49008-5420, USA.
Louise Miller: Department of Accounting, College of Business and Technology, Texas A&M University-Commerce, Commerce, Texas 75429, USA.

Lahore Journal of Economics, 2006, vol. 11, issue 2, 141-154

Abstract: Consistent with asymmetric information arguments, prior research has shown that the financial market typically responds negatively to the announcement of a seasoned equity offering (SEO). Korajczyk and Levy (2003), however, suggest that while some firms time the issuance of their common stock to take advantage of outside investor overvaluations, financially constrained firms do not. We examine whether prior information on how financially constrained a firm is along with its growth prospects influences the financial market’s response to the firm’s announcement to sell common stock. We find evidence that the financial market does condition its response upon such information using a sample of SEOs from the U.S. Our results also have implications for the financial market’s reaction to SEOs/rights offerings in emerging markets.

Date: 2006
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