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Expected seasoned equity offerings : a study of the difference in abnormal return between expected and unexpected SEOs

Solberg, Øyvind Westgård; Ørstenvik, Maria Birkelund
Master thesis
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URI
http://hdl.handle.net/11250/2383119
Date
2015
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  • Master Thesis [4657]
Abstract
In this thesis, the focus is on expected seasoned equity offerings (SEOs) completed

by firms listed on the Oslo Stock Exchange or the Oslo Axess in the period between

January 2011 and August 2015. We test a prediction that firms expected to execute

an SEO should experience a less profound stock price reaction on the

announcement date, as the market should already have factored in these

expectations.

The scope of the analysis was to examine the stock price reaction for firms on both

the expectation- and announcement date. The analysis was based on two

selections, one where all SEOs were defined as expected, and another where all

were defined as unexpected. Separating firms in this way made it possible to

analyze the difference in stock price reaction for expected- and unexpected SEOs

on announcement. The input necessary to make inferences about the stock price

reactions was gained through an event study. Furthermore, we examined how

various firm characteristics affected the abnormal return.

The most interesting results obtained through our analysis was that firms expected

to execute an SEO actually experienced a larger, not a smaller negative abnormal

return on the announcement date in comparison with firms that unexpectedly

executed an SEO. The explanation for our surprising result may be that the majority

of firms in the group of “expected SEOs” were firms with liquidity constraints.

Additionally, the same firms experienced a large negative abnormal return on the

expectation date.

From our cross-sectional analysis, we observed that large capitalized firms where

the market expected the SEO experienced a less negative announcement effect

compared to firms with unexpected SEOs. Furthermore, firms connected to a crisis

issue experienced a higher negative abnormal return on both event dates relative to

those connected to growth. This result was equivalent for both expected- and

unexpected SEOs.

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