The evidence of a negative price response generally associated with the initial announcement of seasoned common stock offerings demands a more explicit rationale for why management would undertake an action that serves to lower current shareholder wealth. Although adverse selection appears to be the prevailing explanation for this price response, it is not evident that overvaluation should suffice as an explanation for both the equity-offering decision and the pecking-order financing preference. The purpose of this study is to explore the validity of overvaluation apart from the issue of pecking-order as an explanation for this decision and the corresponding price response. Particular emphasis is put upon the market's interpretation of the equity offering and the characteristics associated with management, the firm, and the offering used by the market to arrive at this interpretation. / The results show that the market does use information relating to capital structure apart from the issue-investment decision in determining the motive for the offering. However, the results are contrary to that implied by pecking-order. In particular, equity-offering firms with binding internal and debt-financing capacity are received more favorably than those with nonbinding internal and debt-financing capacity at the initial announcement. / The evidence also shows that insiders most familiar with the operations of the firm are abnormally high sellers over the second and third months prior to the initial announcement. Further, this selling activity is directly related to the preoffering process price response and levels of internal-financing capacity, and indirectly related to measures of asset utilization efficiency. More compelling is the evidence that these types of insiders who also hold large ownership positions are heavy net sellers surrounding the offering. When analyzing purchasing activity surrounding the offering, it is apparent that, although this activity is higher after the offering announcement, it merely represents purchasing activity that would have normally occurred had the offering not taken place. Overall, these results are highly supportive of the proposition that equity offerings are conducted to take advantage of overvaluation. / Source: Dissertation Abstracts International, Volume: 52-11, Section: A, page: 4028. / Major Professor: James S. Ang. / Thesis (Ph.D.)--The Florida State University, 1991.
Identifer | oai:union.ndltd.org:fsu.edu/oai:fsu.digital.flvc.org:fsu_76541 |
Contributors | Goebel, Joseph Michael., Florida State University |
Source Sets | Florida State University |
Language | English |
Detected Language | English |
Type | Text |
Format | 358 p. |
Rights | On campus use only. |
Relation | Dissertation Abstracts International |
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