Essays on the motives and costs of seasoned equity offerings

Abstract

This thesis studies the motives and costs of SEOs by examining the following issues: "Shelf versus traditional seasoned equity offerings: The impact of potential short selling"; "Corporate social responsibility and seasoned equity offerings"; and "Do stated uses of proceeds affect stock price reactions to security offerings?" In the first essay, we document the impact of the threat of short selling on firms' choice of SEO method. Traditional SEO announcements tend to elicit short selling from traders trying to increase offering discounts. Such manipulative short selling is more difficult for shelf offerings, as the time between their announcement and issuance tends to be shorter. We predict and find that firms with higher short-selling potential (SSP) are more likely to choose a shelf over a traditional SEO. This result is robust to the use of alternative proxies for potential short selling as well as other sensitivity tests. Further analysis suggests that shelf issuers aim to mitigate the threat of manipulative rather than informed short selling. Our findings add to a growing literature showing that short selling has a real impact on corporate finance decisions. The second essay examines whether corporate social responsibility (CSR) creates value for seasoned equity issuers. Using a sample of SEOs by U.S. companies between 2004 and 2013, we find a positive association between CSR performance and the stock price reaction to SEO announcements. Surprisingly, however, further tests reveal that seasoned equity issuers with high CSR scores tend to have higher post-SEO increases in cash holdings, and lower investments in real assets, than issuers with low CSR scores. Moreover, high CSR issuers have worse post-SEO operating and stock price performance than low CSR issuers. Together, our findings suggest that high CSR scores mislead shareholders into attributing value-increasing motives to seasoned equity issues. The final essay examines the impact of stated uses of proceeds on the stock price reaction to security offering announcements. Using a sample of U.S. seasoned equity, convertible, and straight debt offerings from 2000 to 2016, we find that seasoned equity issuers that are specific about their stated use of proceeds have more favorable announcement effects than those with a vague overview. This effect is more positive for seasoned equity than for straight debt offerings. Further analysis shows that stated uses of proceeds are more specific for seasoned equity offerings than for convertible and straight debt offerings. Our findings add to a small stream of studies examining the role of prospectus information on the stated uses of proceeds in creating values for issuers.

Date of Award	31 Dec 2018
Original language	English
Awarding Institution	The University of Manchester
Supervisor	Norman Strong (Supervisor) & Marie Dutordoir (Supervisor)