Management guidance and the underpricing and long-term performance of seasoned equity offerings
We argue that management guidance on firms’ future earnings and other financial information serves to alleviate information asymmetry around seasoned equity offerings (SEOs). Therefore, it should reduce the magnitude of SEO underpricing, a measure of firms’ cost of equity capital. Our evidence suggests that the presence and the level of guidance reduce SEO underpricing while the change in the level of guidance does not. We further show that it is the presence of guidance that matters and not necessarily the direction of guidance by documenting that upward and downward guidance have similar effect on SEO underpricing. We also examine the effect of guidance on firms’ post-SEO performance and find that while the presence of guidance does not affect firms’ post-SEO performance, firms with an increase in upward guidance prior to their SEOs perform worse during the year after the SEOs than those without an increase in upward guidance. We conclude that management guidance plays a role in reducing firms’ cost of equity capital.
Oliver Zhen Li Zili Zhuang
University of Arizona The Chinese University of Hong Kong
国际会议
广州
英文
1-45
2009-07-07（万方平台首次上网日期，不代表论文的发表时间）