Pricing of Seasoned Equity Offers and Earnings Management

Yongtae Kim and Myung Seok Park

Journal of Financial and Quantitative Analysis, 2005, vol. 40, issue 2, 435-463

Abstract: This study examines the relations between earnings management by firms offering seasoned equity issues and the pricing of their offers. We hypothesize that seasoned equity offering (SEO) firms that employ aggressive accounting decisions also more aggressively push up their offer prices, thereby leading to a decrease in the degree of underpricing. Consistent with our prediction (the issuer's greed hypothesis), evidence indicates that SEO firms that make opportunistic accounting decisions issue new shares at inflated prices. Our findings remain robust after controlling for other determinants of SEO underpricing and the possible endogeneity of pricing and earnings management.

Date: 2005
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