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Individual Project Jiayi

In: Business and Management

Submitted By jiayi0306
Words 3113
Pages 13
Final Project

How Do SEOs Affect the Firm’s Competitor in the Same Industry?

Abstract Seasoned equity offerings (SEOs) is reissuing of stock after the initial public offering (IPO). With SEO, corporations raise funds through the sale of stocks rather than the issuance of additional debt. Many articles have mentioned that investors may construe a seasoned issue as a sign that a company is having financial problems. This news can cause the price of both the corporation’s outstanding shares and the new shares to fall. This is the impact of SEOs to the issuer itself, then what is the impact of SEOs to the competitors in the same industry? Will the stock return of competitors decrease or increase, or the SEOs have no impact on other corporations? This study examines the abnormal return on the file date of competitors in the same industry to test the effect of SEOs to competitors by event study and Ordinary Least-Squares Regression.

1.

Introduction

This study observes the effects of seasoned equity offerings (SEOs) to the competitors in the same industry. Seasoned equity offerings may involve shares sold by existing shareholders (non-dilutive), new shares (dilutive) or both. This moment can be marked by the file date that the corporation announced to conduct a seasoned equity offering, and the reacts of the market can be shown from the return of the specific corporation and its competitors, defined as Return = { [Ending stock price (period 1) – Initial price]+Dividends} / Initial price. Here we mainly examine the excessive or abnormal return of the corporation which conducted the SEO, and its competitors, and check what kind of variables may influence the result of abnormal returns. Previous literature about the effects of SEOs on the issuing firms shows two different opinions and find little influence on the competitive effects of SEOs to industry...

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