The Seasoned Equity Offering Announcement Effect and Its Impact Factors ─The Case of Taiwan Publicly Listed Companies

This research aims to study the seasoned equity offering (SEOs) announcement effect and its impact factors of publicly-listed companies in Taiwan from Jan. 2010 to Jun. 2013. Event study method and market model analysis are employed to testify whether a SEO announcement event yields significant abnormal return. Furthermore, four factors, including growth opportunities, capital structure, corporate governance and underwriting type are explored to understand the impacts on a SEO announcement event.
The empirical result indicates that: (1) Upon the press release by the board, there was a significantly positive abnormal return which existed until the next second day, which implied the stock market is highly efficient with quick response to the event; (2) Companies with high growth opportunities (i.e. high revenue growth, high return on equity or low price to book value ratio) showed significantly positive abnormal return on the announcing day which last until the next day. It is inferred that investors are more willing to offer higher evaluation for those who are undervalued; (3) Companies with high debt ratio (i.e. weak capital structure) generated significantly positive abnormal return, which is in line with the capital structure hypothesis that SEO can help improve the capital structure; (4) Companies with low board seats proportion of controlling shareholders or net increase of changes on insiders’ total shareholdings demonstrated significantly positive abnormal return and cumulative abnormal return; (5) Companies adopting book-building showed significantly positive abnormal return and cumulative abnormal return on the announcing day until the next day. This is probably because investors believe that more external monitoring mechanism can be carried into the company, which thus deserves high evaluation.