Private debt, unused credit lines, and seasoned equity offerings

Yang Liu and J. Jimmy Yang

The Quarterly Review of Economics and Finance, 2011, vol. 51, issue 4, 376-388

Abstract: We study a sample of SEOs to examine the impact of private debt and unused credit lines on SEO underpricing and long-run stock and operating performance. We do not find significant effects of private debt financing on SEO underpricing and long-run stock underperformance. However, firms with more bank debt and unused lines of credit exhibit significantly better pre-issue operating performance. Changes in operating performance from the pre-issue year to the post-issue period are negatively related to the size of unused credit lines. Capital spending decreases with the size of unused credit lines in the year prior to SEOs, but increases following SEOs. Our overall evidence suggests that the post-issue operating performance we observed may be a result of overinvestment, which is enhanced by unused credit lines.

Keywords: Private debt; Unused lines of credit; Seasoned equity offerings; Operating performance (search for similar items in EconPapers)
JEL-codes: G12 G24 G32 (search for similar items in EconPapers)
Date: 2011
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Persistent link: https://EconPapers.repec.org/RePEc:eee:quaeco:v:51:y:2011:i:4:p:376-388

DOI: 10.1016/j.qref.2011.07.006

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