Working Paper: NBER ID: w13285
Authors: Harry DeAngelo; Linda DeAngelo; Ren M. Stulz
Abstract: Firms conduct SEOs to resolve a near-term liquidity squeeze, and not primarily to exploit market timing opportunities. Without the SEO proceeds, 62.6% of issuers would have insufficient cash to implement their chosen operating and non-SEO financing decisions the year after the SEO. Although the SEO decision is positively related to a firm's market-to-book (M/B) ratio and prior excess stock return and negatively related to its future excess return, these relations are economically immaterial. For example, a 150% swing in future net of market stock returns (from a 75% gain to a 75% loss over three years) increases by only 1% the probability of an SEO in the immediately prior year. Strikingly, most firms with quintessential "market timer" characteristics fail to issue stock and a non-trivial number of mature firms do issue stock, with current and former dividend payers raising more than half of all issue proceeds.
Keywords: No keywords provided
JEL Codes: G31; G32; G35
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| need for liquidity (E41) | decision to issue stock (G24) |
| MB ratio (C59) | probability of conducting an SEO (C12) |
| prior stock performance (G17) | probability of conducting an SEO (C12) |
| future excess returns (G12) | probability of conducting an SEO (C12) |
| market timing (G14) | decision to issue stock (G24) |