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Credibility and Multiple SEOs: What Happens When Firms Return to the Capital Market?
Author(s) -
Walker Mark D.,
Yost Keven,
Zhao Jing
Publication year - 2015
Publication title -
financial management
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.647
H-Index - 68
eISSN - 1755-053X
pISSN - 0046-3892
DOI - 10.1111/fima.12099
Subject(s) - credibility , business , equity (law) , agency cost , monetary economics , sample (material) , capital market , market timing , abnormal return , finance , economics , initial public offering , corporate governance , shareholder , stock exchange , chemistry , chromatography , political science , law
Using a sample of firms that conducted multiple seasoned equity offerings (SEOs) from 1995 to 2012, we examine whether firms can build credibility for subsequent SEOs by following through on their stated use of the proceeds from earlier SEOs. We find that firms that state their intention to invest these funds in projects and those that make no such statements, but do invest have relatively more positive announcement returns around subsequent SEO announcements. Our results suggest that the markets are aware of the potential agency costs of equity, have a long memory, and update their beliefs as to the likely use of funds raised by firms.