Seasoned equity offerings benefit to existing shareholders

The company will offer a discounted price to the existing shareholder to attract them to buy the offered share. The amount of potential equity capital the issuing company does not receive directly due to the degree of discounting in SEO, so it is important decision for the management of the company. The existing shareholder ownership will be dilute if they don’t take offered. Firms that roll pit seasoned equity offerings (SEOs) normally have shares of high valuation which do rise remarkably. Previous research on capital structure explains that market reaction to SEO will be negative to stock price when the SEO announcement is made. An Introduction to Seasoned Equity Offerings For ease of understanding, the characteristics of SEOs are introduced in this section.

A SEO is an evaluation scheme for firms, live on the stock exchange market, in a measure to raise internal capital. This simply insinuates that the listing of the firm has been made public and has already issued equity under the initial public offering (IPO), in which an original stock is being offered for the first time. When rolling out a SEO, firms can opt to this through either the primary offering method or the secondary offering method. Upon use of the primary offering, new investors are providing with new shares for the first time. This can either be in the standard uninsured form or as a standby offering. In the standard uninsured, the existing shareholders got an edge in that they got the option or privilege of purchasing the shared being offered before they are accorded to the general public.

This is directly dependent on the will of the existing shareholders to take in more shares and the new investors’ obligation to buy Problem Discussion As mentioned early on, research undertaken on SOEs and the consecutive stock returns has often been dominated by research on the American market and equity matters started receiving more publicity within the academic world after 1983 (Kothari &Warner 196). This literature has dwelled on examining the duration up to 2000 and it has segmented into two main sections of research. The first section tends to elaborate more on the immediate repercussion while on the other hand; the second section tends to focus on the long term effects of this to the extent of 5 years after the offering. S. The minimal scope can be attributed to the unavailability of data on the international markets.

However, Eckbo et al. (173) describes that the U. S study seems to put into focus the technique of offer, while the international study solely dwells on the rights offerings. Guided by the discussion above, it is clear that the SEOs and the succeeding stock performance index relation has focused on the examination of equity issues up to 2000. Moreover, there is a variation on the evidence from international studies and thus, it is seen as interesting to continue a research on this topic while in consideration of the current European set up. The aim of this research is twofold. First, we seek to establish if there could be abnormal return curves for entities that offered equity in France, Netherlands, Germany and Belgium in the duration 1990-2012.

We will go through this and take a look at the reactions by the market on a short term upon the announcement of the SEO and also and the long term reaction after the announcement was made. These two approaches have got own proponents and both methodologies are open to discussion, debate and criticism and thus, both are used (Mitchell & Stafford, 295). Hypothesis Hypothesis with respect to the effect of SEOs on the short-and long-run stock value conduct just as potential impacting factors are inspected in this part. These theories depend on hypothetical forecasts and observational proof given by past research. Mulling over the writing audit, past research from the US basically reveals negative declaration returns encompassing a SEO declaration. The American examinations have given proof of negative anomalous returns after some time (Asquith and Mullins, 165, Masulis and Korwar, 132; Bayless and Chaplinsky, 273 Heron and Lie, 412).

The speculations underneath will be tried for both short-and long-run stock execution. The market capitalization of an issuing firm is emphatically identified with the irregular returns, both in the short-and long-run. The general size of the issue is contrarily identified with the anomalous returns of issuing firms, both in the short-and long-run. The book-to-advertise is decidedly identified with the anomalous returns of issuing firms, both in the short-and long-run. Visit guarantors are contrarily identified with the irregular returns of issuing firms, both in the short-and long-run. All the more explicitly, the supervisors of the firm find out about the genuine state of the firm contrasted with financial specialists and henceforth, they will be hesitant to issue value in the event that they see the value to be underestimated.

Therefore, if a firm issues value, the market response of such a declaration is probably going to be negative as it uncovers that administration sees the normal stock to be exaggerated (on the same page). On the off chance that the pecking request hypothesis holds, it is inferred that value declarations ought to pursue a time of positive returns, as supervisors hold up until they can raise capital at great terms. Besides, value guarantors should encounter negative irregular returns upon the declaration, as the hilter kilter data is diminished and speculators infer that the stock is exaggerated. Another understanding of the hypothesis, proposing comparable ramifications as above, could be that organizations are in a tight money related circumstance and henceforth, use value if all else fails (Brav et al.

ii)the long-run stock performance following SEO company. The previous literature provided that negative abnormal return over time in US market Bayless & Chaplinsky (231). However, some literature pointed that positive abnormal return (Kang & Stulz, 1996; Cronqvist & Nilsson, 362). The negative announcement effect could be due to asymmetric information between issuing company and existing shareholder. To solve the information problem, some literature suggests to employed investment bank be middleman to review the inside information and prospects of company to ensure the offer price is not mispriced. quamnet. com/Quote. action website. Discounting of offering prices Going by the identity defined by Altinkilic and Hansen (198), discounting is described as the rationbetweenprices at the close of the day before the offer to the offer price. Underpricing on the other hand is the ration between the closing price on the day of offer and the price offered.

Also, we found out the relationship existing between underwritersand the degree of discounting. We tested the result of SEO between the major shareholder and the existing shareholders to identify the asymmetric data in relation to the pricing of the SEO. Stock Performance of SEO Company Similar to various case studies, the act of measuring the long term performance following an SEO can be served or undertaken under various ways. The Calendar-Time Portfolio (CTP) approach (Eckbo et al. , 142); try to measure the event-related long-term abnormal performance. This outcome is free of the association's pre-SEO money position. It doesn't demonstrate that the market is proficient to have a more noteworthy negative declaration impact on firms with higher money need. In any case, long-run stock returns for SEO firms with higher money need are essentially and financially lower than market benchmark returns.

In the meantime long-run negative unusual stock returns are not critical for SEO firms with money surplus at the season of advertising. These discoveries recommend that the market is wasteful as showed by its inability to completely mirror the negative data contained in real money need at the season of the SEO declaration. In view of the discoveries from the above investigation in mix with the outcomes from the full example, the accompanying segment will examine the consistency of the long-run results and attempts to build up a potential exchanging technique. We initiate by assessing an occasion driven system for the full example and in this way, we endeavor to set up a technique for the POS test As contended above "Similarly versus Esteem weighted Returns", esteem weighted outcomes can be viewed as all the more intriguing from a prudent point of view.

This can be ascribed to the way that esteem weighted outcomes better speak to the execution of a normal speculator and the general economy. Conclusion In conclusion, this paper analyzes the limiting of REIT prepared value contributions from 1994-2006. Limiting speaks to a genuine dollar sum left on the table of almost $2 million for the normal REIT value offering amid this timeframe, so an understanding about what impacts the rate of limiting is pivotal. Productive markets should represent estimating changes because of the expanded supply of offers on the declaration date, however any residual vulnerability about valuation or arrangement costs is caught in the limiting of the offer cost. Undervaluing catches no residual estimating impact on the offer date. This finding proposes an adjustment in the idea of REIT capital markets that may stretch out to the more extensive money related markets.

Financial specialists resolving to buy a predetermined number of offers at the offer cost have some assumption regarding how the stock cost will respond in the hours, weeks, and months following the advertising. Their desires should fuse the way that the business sectors have proficiently represented the number and estimating of the new offers and costs after the offer date will be controlled by new firm and market data. Armitage, Seth. "Do underwriters certify value? Evidence from UK rights issues and open offers. " Journal of Business Finance & Accounting 29. Armitage, Seth. "The direct costs of UK rights issues and open offers. E. Eckbo, and D. Michalsen (1997), ‘Why Underwrite Rights Offerings? Certification Role?’ Journal of Financial Economics, 40, 373–401. Corwin SA. , (2003), The determinants of underpricing for seasoned equity offers, The Journal of Finance, 58, 2249-2279.