The Methodology Matters: What Influences Market Reaction, and Post-Issue Returns in Seasoned Equity Offerings?

C. N. V. Krishnan () and Minghao Wu
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C. N. V. Krishnan: Weatherhead School of Management, Case Western Reserve University, 10900 Euclid Avenue, Cleveland, OH 44106, USA
Minghao Wu: Weatherhead School of Management, Case Western Reserve University, 10900 Euclid Avenue, Cleveland, OH 44106, USA

JRFM, 2022, vol. 15, issue 10, 1-22

Abstract: Using a large database of U.S. seasoned equity offering (SEO) announcements from 2010 to 2015, we examine the effects of several explanatory variables—firm specific, macroeconomic, fixed income, and stock market variables—on the announcement period abnormal stock returns and on the longer-run post-issue abnormal returns. We use five different statistical methods—multivariate linear regression, regression on a reduced model using principal components analysis, year-by-year regression on a reduced model using principal components analysis, random forest regression on the whole sample, and year-by-year random forest regression. In general, across the methods, we find that firm’s profitability in the recent past is an important explanatory factor in both short-term and long-term abnormal stock returns, but several other significant explanatory factors change based on the statistical method used. Therefore, the statistical method used affects the results reported.

Keywords: seasoned equity offerings; SEO; announcement period abnormal stock returns; long-run post-issue abnormal returns; principal components analysis; random forest regression; key determinants (search for similar items in EconPapers)
JEL-codes: C E F2 F3 G (search for similar items in EconPapers)
Date: 2022
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