Seasoned Equity Offerings and Capital Structure
Firms’ financing and leverage behavior surrounding seasoned equity offerings (SEOs) is consistent with the trade-off theory and inconsistent with the market timing and pecking order theories of capital structure. Although the leverage of SEO firms drops due to the increase in equity, it reverts to the pre-SEO level within three years following the SEO. This reversal is driven by substantial debt issuances subsequent to the SEO. The evidence challenges the market timing theory in which managers do not rebalance away the effects of market timing on capital structure. The pecking order theory does not predict SEOs and subsequent debt issuances. The financial condition of SEO firms prior to the offering is fairly solid and the financial deficit has limited explanatory power for debt issues across firms. Using simple proxies for target leverage, I find that the deviation from the target immediately following the SEO helps to explain subsequent debt issues. The evidence supports the trade-off theory. SEOs deviate the leverage of issuing firms away from the target and subsequent debt issues move leverage back towards the target.
Capital Structure Seasoned Equity Offerings Trade-off Pecking Order Market Timing
Fangjian Fu
Lee Kong Chian School of Business Singapore Management University 50 Stamford Road, Singapore 178899
国际会议
成都
英文
1-51
2007-07-09（万方平台首次上网日期，不代表论文的发表时间）