Hostname: page-component-78c5997874-8bhkd Total loading time: 0 Render date: 2024-11-13T00:59:14.275Z Has data issue: false hasContentIssue false
  • English
  • Français

Discounting and Clustering in Seasoned Equity Offering Prices

Published online by Cambridge University Press:  06 April 2009

Simona Mola  and
Tim Loughran
Simona Mola
Affiliation:
[email protected], Bocconi University and Smeal College of Business Administration, Pennsylvania State University, University Park, PA 16802;
Tim Loughran
Affiliation:
[email protected], Men-doza College of Business, University of Notre Dame, Notre Dame, IN 46556-5646.
Get access Rights & Permissions [Opens in a new window]

Abstract

An analysis of 4,814 SEOs during 1986–1999 indicates that the average offering ofnew shares is priced at a discount of 3% from the closing price on the day before the issue. Discounts have risen steadily over time, sharply increasing the indirect costs of issuing seasoned equity. There is evidence of increased clustering of offer prices at integers, and of greater importance in the analyst coverage provided by underwriters. Adjusting for other factors, we find that issues with integer offer prices, and underwriters with highly regarded analysts, are increasingly associated with larger discounts. The rise in discounts is consistent with an increased ability of investment bankers to extract rents from issuing firms.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 39 , Issue 1 , March 2004 , pp. 1 - 23
Copyright
Copyright © School of Business Administration, University of Washington 2004

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

Altinkiliç, O., and Hansen, R. “Discounting and Underpricing in Seasoned Equity Offers.” Journal of Financial Economics, 69 (2003), 285–323.CrossRefGoogle Scholar
Barclay, M., and Litzenberger, R. “Announcement Effects of New Equity Issues and the Use of Intraday Price Data.” Journal of Financial Economics, 21 (1988), 71–99.CrossRefGoogle Scholar
Bradley, D.; Cooney, J. Jr; Jordan, B.; and Singh, A.. “Negotiation and the IPO Offer Price: A Comparison of Integer versus Non-Integer IPOs.” Working Paper, Univ. of Kentucky (2002).Google Scholar
Bradley, D.; Jordan, B.; andRitter, J. “The Quiet Period Goes Out with a Bang.” Journal of Finance, 58 (2003), 1–36.CrossRefGoogle Scholar
Brenner, G., and Brenner, R. “Memory and Markets, or Why Are You Paying $2.99 for a Widget?” Journal of Business, 55 (1982), 147–158.CrossRefGoogle Scholar
Carter, R.; Dark, F.; and Singh, A. “Underwriter Reputation, Initial Returns, and the Long-Run Performance of IPO Stocks.” Journal of Finance, 53 (1998), 285–311.CrossRefGoogle Scholar
Carter, R., and Manaster, S. “Initial Public Offerings and Underwriter Reputation.“ Journal of Finance, 45 (1990), 1045–1067.CrossRefGoogle Scholar
Chen, H.-C., and Ritter, J. “The Seven Percent Solution.” Journal of Finance, 55 (2000), 1105–1131.CrossRefGoogle Scholar
Christie, W., and Schultz, P. “Why do NASDAQ Market Makers Avoid Odd-Eighth Quotes?” Journal of Finance, 49 (1994), 1813–1840.Google Scholar
Corwin, S. “The Determinants of Underpricing for Seasoned Equity Offers.” Journal of Finance, 58 (2003), 2249–2279.CrossRefGoogle Scholar
Dunbar, C. “Overallotment Option Restrictions and Contract Choice in Initial Public Offerings.” Journal of Corporate Finance, 3 (1997), 251–275.CrossRefGoogle Scholar
Dunbar, C. “Factors Affecting Investment Bank Initial Public Offering Market Share.” Journal of Financial Economics, 55 (2000), 3–41.CrossRefGoogle Scholar
Field, L., and Hanka, G.. “The Expiration of IPO Share Lockups.” Journal of Finance, 56 (2001), 471–500.CrossRefGoogle Scholar
Gerard, B., and Nanda, V. “Trading and Manipulation around Seasoned Equity Offerings.” Journal of Finance, 48 (1993), 213–245.CrossRefGoogle Scholar
Grossman, S.; Miller, M.; Cone, K.; Fischel, D.; and Ross, D. “Clustering and Competition in Asset Markets.” Journal of Law and Economics, 40 (1997), 23–60.CrossRefGoogle Scholar
Harris, L. “Stock Price Clustering and Discreteness.” Review of Financial Studies, 4 (1991), 389–415.CrossRefGoogle Scholar
Jegadeesh, N.; Weinstein, M.; and Welch, I. “An Empirical Investigation of IPO Returns and Subsequent Equity Offerings.” Journal of Financial Economics, 34 (1993), 153–175.CrossRefGoogle Scholar
Kadlec, G.; Loderer, C.; and Sheehan, D. “Issue Day Effects for Common Stock Offerings: Causes and Consequences.” Working Paper, Virginia Tech (1997).Google Scholar
Kahn, C.; Pennacchi, G.; and Sopranzetti, B. “Bank Deposit Rate Clustering: Theory and Empirical Evidence.” Journal of Finance, 54 (1999), 2185–2214.CrossRefGoogle Scholar
Krigman, L.; Shaw, W.; and Womack, K. “Why Do Firms Switch Underwriters? Journal of Financial Economics, 60 (2001), 245–284.CrossRefGoogle Scholar
Lin, H.-W., and McNichols, M. “Underwriting Relationships, Analysts' Earnings Forecasts and Investment Recommendations.” Journal of Accounting and Economics, 25 (1998), 101–127.CrossRefGoogle Scholar
Loderer, C.; Sheehan, D.; and Kadlec, G. “The Pricing of Equity Offerings.” Journal of Financial Economics, 29 (1991), 35–57.CrossRefGoogle Scholar
Loughran, T., and Ritter, J. “Why Has IPO Underpricing Changed over Time? Working Paper, Univ. of Florida (2002).CrossRefGoogle Scholar
Masulis, R., and Korwar, A. “Seasoned Equity Offerings. An Empirical Investigation.” Journal of Financial Economics, 15 (1986), 91–118.CrossRefGoogle Scholar
Safieddine, A., and Wilhelm, W. Jr, “An Empirical Investigation of Short-Selling Activity Prior to Seasoned Equity Offerings.” Journal of Finance, 51 (1996), 729–749.Google Scholar
Securities and Exchange Commission v. Johnson, Paul E.. Complaint available at http://www.sec.gov/litigation/complaints/comp17922.htm.Google Scholar
Smith, C. “Alternative Methods for Raising Capital: Rights Versus Underwritten Offerings.” Journal of Financial Economics, 5 (1977), 273–307.CrossRefGoogle Scholar