The Curious Announcement Effect of Combined SEOs

J. Barry Lin ()
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J. Barry Lin: Khalifa University of Science and Technology

No 5607632, Proceedings of Business and Management Conferences from International Institute of Social and Economic Sciences

Abstract: This paper examines the differences in announcement effects among Combined, Primary, and Secondary SEOs. Earlier studies suggest that primary SEOs signal financial strains, while secondary SEOs signals over-pricing and increases misalignment of interests between insiders and shareholders. Theoretically, combined SEOs combine the negative incentive effects from both the primary and secondary SEOs. However, empirical result is curious. We find that Primary SEO suffers the most negative 3-day cumulative abnormal returns (CAR) upon announcement, followed by Combined SEOs, while Secondary SEOs experience the smallest, but statistically significant negative 3-day CAR. To seek some explanation for this curious empirical result, we investigate the patterns of ownership among the three types of SEOs. Insider ownership is highest for combined SEO, while institutional ownership is highest for the secondary issues, with block ownership also highest for the combined SEOs. We argue that such differences in ownership structure at least provide some explanation to the reason why combined SEOs are not perceived to exhibit the negative incentive effects associated with both primary and secondary SEOs.

Keywords: Primay SEO; Secondary SEO; Combined SEO; Ownership Structure; Announcement Effect (search for similar items in EconPapers)
JEL-codes: G30 G39 (search for similar items in EconPapers)
Pages: 11 pages
Date: 2017-07
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Published in Proceedings of the Proceedings of the 6th Business & Management Conference, Geneva, Jul 2017, pages 97-107

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Persistent link: https://EconPapers.repec.org/RePEc:sek:ibmpro:5607632

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