IPOs and SEOs, real investments, and market timing: Emerging market evidence

Kavita Wadhwa, V. Nagi Reddy, Abhinav Goyal () and Abdulkadir Mohamed

Journal of International Financial Markets, Institutions and Money, 2016, vol. 45, issue C, 21-41

Abstract: This study uses market-to-book ratio decomposition to examine whether firms that issue equity through initial public offerings or seasoned equity offerings exploit mispricing because of investor enthusiasm or to finance growth opportunities. We find strong evidence that, on average, firms do not issue mispriced stocks to exploit investors but, rather, to finance their investment opportunities in the form of real assets, inventory, and capital expenses. Firms that issue overvalued stocks with the view to increase their cash holdings experience poor long-run performance. Overall, our results show that stock mispricing drives equity offerings through IPOs and SEOs. Nonetheless, high transparency and balanced regulation in the marketplace deter issuing firms from investing their proceeds in non-value-creating activities. This evidence is robust to alternative measures of valuation and long-run performance.

Keywords: IPOs; SEOs; Market-timing; Investment funding; Market-to-book ratio; Residual income model; Long-run performance (search for similar items in EconPapers)
JEL-codes: G31 G32 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S1042443116300464
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:intfin:v:45:y:2016:i:c:p:21-41

DOI: 10.1016/j.intfin.2016.05.007

Access Statistics for this article

Journal of International Financial Markets, Institutions and Money is currently edited by I. Mathur and C. J. Neely

More articles in Journal of International Financial Markets, Institutions and Money from Elsevier
Bibliographic data for series maintained by Catherine Liu ().