Chapter 31 Seasoned equity offerings: A survey

Publisher Summary This chapter reviews the theory and statistical evidence concerning the causes and effects of seasoned public offers (SPOs) of common stock, with particular emphasis on results and findings that post-date the well known survey by Smith up to 1994. The most frequently used flotation methods are described in the chapter and their relative aggregate frequencies, beginning in 1935, are shown . The available evidence on direct and indirect costs is examined for three major flotation methods: uninsured rights, standby rights and firm commitment underwritten offers. Multivariate regressions strongly indicate that rights issues have the lowest direct flotation cost, firm commitment underwritten offers the highest, while standby rights offers are in between. In light of this, the overwhelming preference for the apparently expensive firm commitment flotation method must reflect either additional indirect costs which decrease the attractiveness of rights and standbys or, alternatively, a managerial incentive problem in choosing the optimal flotation method. The valuation effects of seasoned equity offers across flotation methods and the large body of empirical evidence in this area are examined, including stock price effects of SPO announcements by flotation method, type of securities issued, and classified by offer completion or withdrawal.

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