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Information conveyed by seasoned security offerings: evidence from components of the bid–ask spread
Author(s) -
Brooks Raymond M,
Patel Ajay
Publication year - 2000
Publication title -
review of financial economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.347
H-Index - 41
eISSN - 1873-5924
pISSN - 1058-3300
DOI - 10.1016/s1058-3300(00)00018-5
Subject(s) - information asymmetry , adverse selection , equity (law) , business , proxy (statistics) , debt , ask price , monetary economics , event study , valuation effects , economics , financial economics , finance , valuation (finance) , paleontology , context (archaeology) , machine learning , political science , computer science , law , biology
We examine the relationship between the degree of informational asymmetry surrounding a firm and the equity market's reaction to a firm's announcement to sell seasoned securities. We use the adverse‐selection component of the bid–ask spread as a proxy for the informational asymmetry of a firm. For equity offers, we find that the greater the change in information asymmetry at announcement, the greater the decline in wealth. In addition, the largest decline in wealth for seasoned equity announcements is observed for firms with the largest level of pre‐event adverse‐selection components. For debt offers, the wealth decline is only significant for firms with the largest pre‐event levels of asymmetric information.