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