SEO firms' lottery-like characteristics, institutional ownership, and long-run performance

Junming Hsu, Tung-Hsiao Yang and Po-Shen Sung

Journal of Business Research, 2016, vol. 69, issue 6, 2160-2166

Abstract: This study investigates whether firms' lottery-like characteristics (low price, great idiosyncratic volatility, and high skewness) affect institutions' participation in share allocation around seasoned equity offerings (SEOs) and firms' post-issue long-run performance. The results show that the level of institutional ownership of lottery-like firms is lower than non-lottery-like firms, but these lottery-like firms attract more new institutions to purchase SEO shares. When this study controls for related factors (e.g., changes in institutional ownership and systematic risk), lottery-like characteristics negatively associate with issuers' long-run performance. These results indicate that those lottery-like firms that institutions favor are able to improve their performance after SEOs but still underperform non-lottery-like firms. This result implies that many institutional investors are overoptimistic about the investment opportunities of lottery-like firms.

Keywords: Seasoned equity offerings; Lottery-like stocks; Institutional ownership; Long-run performance (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbrese:v:69:y:2016:i:6:p:2160-2166

DOI: 10.1016/j.jbusres.2015.12.024

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