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.