Does liquidity risk explain low firm performance following seasoned equity offerings?

Bilinski, P., Liu, W. & Strong, N. (2012). Does liquidity risk explain low firm performance following seasoned equity offerings?. Journal of Banking and Finance, 36(10), pp. 2770-2785. doi: 10.1016/j.jbankfin.2012.07.009

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Abstract

A seasoned equity offering (SEO) can improve a firm's stock liquidity and lower its cost of capital. This paper examines whether SEO firms achieve a liquidity gain and the sources of this gain. It explores the role of liquidity risk in explaining SEO long-run performance. The evidence shows that SEO firms experience significant post-issue improvements in liquidity and reductions in liquidity risk. Size and book-to-market matching fails to control for these liquidity effects, generating the low long-term post-SEO performance documented in the literature. After adjusting for liquidity risk, SEO firms show normal long-term performance.

Item Type: Article
Uncontrolled Keywords: Event studies, Liquidity risk, Seasoned equity offerings
Subjects: H Social Sciences > HG Finance
Divisions: Cass Business School > Faculty of Finance
URI: http://openaccess.city.ac.uk/id/eprint/7623

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