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Seasoned Equity Offers: The Effect of Insider Ownership and Float
Author(s) -
Intintoli Vincent J.,
Kahle Kathleen M.
Publication year - 2010
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/j.1755-053x.2010.01123.x
Subject(s) - insider , equity (law) , monetary economics , float (project management) , underwriting , business , market liquidity , insider trading , stock (firearms) , financial system , financial economics , economics , finance , management , political science , law , mechanical engineering , engineering
Seasoned equity offering (SEO) underpricing has increased dramatically since the early 1980s. While previous research has examined the determinants of SEO underpricing, these studies have not explored the effect of insider ownership on discounts. We find that this effect is twofold. First, higher insider ownership reduces float, thereby increasing price pressure and SEO underpricing. This effect is greatest in firms with low liquidity. Second, the greater the percentage of secondary shares offered, the lower the underpricing, suggesting that manager's pressure banks to reduce underpricing when their personal wealth is at stake. However, we find that this negative relation is mitigated if the firm employs a prestigious underwriter.