Liquidity management around seasoned equity offerings
We investigate firms' liquidity practices around seasoned equity offerings (SEOs). We broadly classify issuers on the basis of whether the firm belongs to an industry deemed to be financially constrained or unconstrained. We find that constrained-industry issuers tend to save more cash to co...
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| Main Authors: | , |
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| Format: | Article |
| Language: | English |
| Published: |
Penerbit Universiti Kebangsaan Malaysia
2014
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| Online Access: | http://journalarticle.ukm.my/7801/1/00000001.PDF http://journalarticle.ukm.my/7801/ |
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| Summary: | We investigate firms' liquidity practices around seasoned equity offerings (SEOs). We
broadly classify issuers on the basis of whether the firm belongs to an industry deemed
to be financially constrained or unconstrained. We find that constrained-industry issuers
tend to save more cash to conserve funding capacity in anticipating investment.
Unconstrained industry issuers, in contrast, carry high debt and limited cash reflecting a
sizable financial leash. We also find that the former firms experience significant cash
stockpiling following new equity issues, whereasforthe lattergroup, there is a significant
decline in long-term debt. In the long run, unconstrained issuers who aggressively manage
liquidity pre-issue have lower operating profit. However, the relation does not hold for
market-based performance because investors, observingthe liquidity information, quickly
discount stock value at the time of the offering. Rather, post-issue market underperformance
can be attributed to investors' downward revisions relating to the transitory
nature of investment opportunities. |
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