Seasoned Equity Offerings and Stock Price Crash Risk

Rodney D. Boehme, Veljko Fotak and Anthony D. May
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Rodney D. Boehme: W. Frank Barton School of Business, Wichita State University, Wichita, United States
Veljko Fotak: School of Management, State University of New York at Buffalo, Buffalo, United States
Anthony D. May: W. Frank Barton School of Business, Wichita State University, Wichita, United States

International Journal of Finance & Banking Studies, 2020, vol. 9, issue 4, 131-146

Abstract: Using a large sample of U.S. firms during 1987–2011, we find robust evidence that the issuance of seasoned equity is associated with abnormally high future stock price crash risk. The association between seasoned equity offerings and crash risk is stronger among offerings that involve the sale of secondary shares (existing shares sold by insiders or large blockholders). We also find that recent seasoned equity issuers are far less likely to experience sudden positive price jumps relative to firms that have not recently issued equity. Our findings of elevated crash risk and diminished jump risk, when taken together, are consistent with a heightened propensity for firms to hoard bad news but not good news when issuing equity.

Keywords: Stock Price Crash Risk; Tail Risk; Seasoned Equity Offering; Secondary Offering (search for similar items in EconPapers)
Date: 2020
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