Seasoned equity offerings in regulated industries : empirical evidence from Europe

Abstract

We study 4,953 European SEO announcements over the period January 1997 to December 2016. Our results demonstrate that the announcement of equity offerings on average reduce stock prices. Cross-sectional analysis on the full sample indicate that the announcement returns are negatively related to pre-event market volatility, financial instability in the issuer’s country of domicile, preevent stock run-up, firm size and offering size, and positively related to the number of previous equity offerings. We find that SEO announcement returns have been lower for banks than nonbanks in the sample period, but that differences in returns between regulated non-banks and unregulated firms are insignificant. Consistent with this, our results indicate that pre-event information asymmetries may have been higher for banks than for non-banks in the sample period. Some of the variation in CAR between the industries are found to be explained by firm-specific, market-specific and issue-specific characteristics. First, regulated firms are found to issue equity more frequently than unregulated firms in volatile periods and in locally depressed economies. Second, regulated issuers are found to have substantially larger mean market capitalization than unregulated issuers. Third, regulated issuers are found to undertake larger equity offerings on average than unregulated issuers, especially in crisis periods.