Correspondingly, underwriting risk of these issues is heightened. This argument predicts a negative relation between credit ratings and gross spreads.
Overall, the evidence in this section confirms the hypothesis that poor accruals quality is associated with larger equity flotation costs and specifically with larger underwriting fees. Interestingly, the largest portion of this fee represents a selling concession paid to other investment banks for helping distribute the issue to investors.
Offer Size and Accruals Quality While most studies of flotation costs treat offer size as an exogenous variable, it is actually an endogenous variable as observed by Habib and Ljungqvistwhich can be affected by asymmetric information. This adjustment mitigates possible omitted variable problems associated with the MDD measure.
Panel B of Table I reports descriptive statistics and in Panel C a time series of squared roots of the demeaned residuals from our two models of accruals quality.
Beforethere were differences in the flotation method.
We argue that poor accruals quality by an issuer leads to high information risk, since it raises investor uncertainty and asymmetric information between the issuer and outside investors, which SEO announcements could exacerbate.
This auction method ranks bids from highest to lowest, then accepts the highest bids that allow all shares to be sold, with all winning bidders paying the same price. This pattern in the yearly averages of the cross sectional errors suggest an increase in earnings management or uncertainty about operating fundamentals in the year preceding the SEO.
Therefore, investment banks are expected to charge lower gross spreads to higher growth, more profitable firms, implying a negative relation with gross spread. We find that after year t-4 accruals quality deteriorates as we move closer to the SEO year, rising sharply in year t-1, the year prior to the SEO.
In columns 2 and 4 we alternatively use indicator variables AQ1 and AQ5 for issuers in the best and worst quintiles of accruals quality to allow for a non-linear relation between accruals quality and offer size. We find evidence that Big 5 auditors are associated with lower earnings management in the years before, during, and subsequent to the SEO.
First, we estimate equation 2 annually for each of the Fama and French 48 industry groups having at least 20 firms with data available for each of the five years t-4 through t.
This finding leads us to expect a negative relation with gross spreads. Higher growth firms are likely to have more profitable investment opportunities and require more frequent security offerings.
M41, G12, G14 Keywords:Topics: media attention, real earnings management, accounting information quality, seasoned equity offerings. ABSTRACT: Using seasoned equity offerings (SEOs) from towe examine the role of accounting conservatism in the equity market.
We find that issuers with a greater degree of conservatism experience fewer negative market reactions to SEO announcements.
We hypothesize that seasoned equity offering (SEO) firms that employ aggressive accounting decisions also more aggressively push up their offer prices, thereby leading to a decrease in the degree of underpricing.
Earnings Timeliness and Seasoned Equity Offering Announcement Effect Yuequan Wang School of Accounting and Finance The Hong Kong Polytechnic University Hong Kong Abstract This paper examines the relation between the Seasoned Equity Offering (SEO) announcement effect and earnings Seasoned Equity Offerings (SEO) refer.
Keywords: Directors’ and Officers’ liability insurance, managerial opportunism, seasoned equity offerings, long-term performance, earnings management, mandatory disclosure.
* Department of Finance, HEC Montreal. seasoned equity offerings by new economy companies Using a unique database of Australian new economy companies, we find no single broadband communications), information technology, software development, advanced public listing (probably in the form of seasoned equity offers).Download