Does liquidity risk explain low firm performance following seasoned equity offerings?

Pawel Bilinski, Weimin Liu and Norman Strong

Journal of Banking & Finance, 2012, vol. 36, issue 10, 2770-2785

Abstract: A seasoned equity offering (SEO) can improve a firm’s stock liquidity and lower its cost of capital. This paper examines whether SEO firms achieve a liquidity gain and the sources of this gain. It explores the role of liquidity risk in explaining SEO long-run performance. The evidence shows that SEO firms experience significant post-issue improvements in liquidity and reductions in liquidity risk. Size and book-to-market matching fails to control for these liquidity effects, generating the low long-term post-SEO performance documented in the literature. After adjusting for liquidity risk, SEO firms show normal long-term performance.

Keywords: Event studies; Seasoned equity offerings; Liquidity risk (search for similar items in EconPapers)
JEL-codes: G1 G2 (search for similar items in EconPapers)
Date: 2012
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:36:y:2012:i:10:p:2770-2785

DOI: 10.1016/j.jbankfin.2012.07.009

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