Essays on Equity Issuance

Author:

Qian, Hong

Graduate Program:

Business Administration

Degree:

Doctor of Philosophy

Document Type:

Dissertation

Date of Defense:

July 20, 2006

Committee Members:

Dennis P Sheehan, Committee Chair/Co-Chair
Herman J Bierens, Committee Member
Laura B Field, Committee Member
Michelle Lowry, Committee Member

Keywords:

equity issuance
duration analysis
liquidity
seasoned equity offerings
private placements

Abstract:

This thesis explores two issues regarding corporate equity issuance. The first chapter studies the timing of seasoned equity offerings (SEOs) at the firm level. Descriptive statistics formulated using US data from 1975 to 2004 show that when firms return to the equity market, they tend to do so shortly after their preceding public offerings. Moreover, first SEOs following IPOs are more likely to be issued sooner after the IPO than subsequent SEOs. Duration analysis shows that both first SEOs and follow-on SEOs can be attributed to extraordinary capital demands to satisfy growth, and the probability of issuing increases when the equity market and the firm idiosyncratic returns have been rising in the preceding year. Moreover, the economic effect of the aggregate factors is larger than that of the firm-specific factors. First SEOs and follow-on SEOs differ in two aspects. First, there is strong evidence that the probability of issuing first SEOs increases when the idiosyncratic return is expected to decrease in the coming year, while the evidence for follow-on SEOs is weak. Second, first SEOs seem to be driven more by aggregate timing and aggregate growth reasons (except for the pure primary offerings), while the decision of follow-on SEOs can be better explained by firm-specific growth demand. Taken together, the results are consistent with the notion that first SEOs suffer greater information asymmetry and therefore have stronger motive to follow market-wide trends and take advantage of windows of opportunity. The second chapter investigates whether firms that issue equity, in public offerings or private placements, have increased secondary market liquidity. Quote, trade, liquidity ratio, and price impact measures are examined. Results indicate that there is a considerable increase in liquidity for firms that conduct public offerings, yet virtually no change for private placement stocks. Regression analysis suggests that the underwriting effort makes the greatest contribution to the improvement of liquidity after public offerings. In addition, analysts also play an active role in reducing the relative effective spread and the price impacts of Nasdaq issuing stocks. By contrast, prestigious underwriters only have some influence on issuing stocks listed on NYSE and AMEX.