Fundamentals, market timing, and seasoned equity offerings
By: Harry DeAngelo, Linda DeAngelo, René M. Stulz.
Contributors: DeAngelo, Linda.; Stulz, René M.; National Bureau of Economic Research.
Series: NBER working paper series -- no. 13285.; Working paper series (National Bureau of Economic Research) -- working paper no. 13285.
Publisher: National Bureau of Economic Research
Published: 2007
Place of publication: Cambridge, Mass
Language: eng
Number of pages: 24
Subjects: Corporations -- Finance
Description: Firms conduct SEOs to resolve a near-term liquidity squeeze, and not primarily to exploit market timing opportunities. Without the SEO proceeds, 62.6% of issuers would have insufficient cash to implement their chosen operating and non-SEO financing decisions the year after the SEO. Although the SEO decision is positively related to a firm's market-to-book (M/B) ratio and prior excess stock return and negatively related to its future excess return, these relations are economically immaterial. For example, a 150% swing in future net of market stock returns (from a 75% gain to a 75% loss over three years) increases by only 1% the probability of an SEO in the immediately prior year. Strikingly, most firms with quintessential "market timer" characteristics fail to issue stock and a non-trivial number of mature firms do issue stock, with current and former dividend payers raising more than half of all issue proceeds.
Notes: "July 2007"

Includes bibliographical references.

Also available in PDF from the NBER world wide web site (www.nber.org).