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Season equity offering

Crypto trader tv 03.06.2021

season equity offering

Recent studies have documented that firms conducting seasoned equity offerings have inordinately low stock returns during the five years after the offering. A seasoned equity offering or secondary equity offering (SEO) or capital increase is a new equity issued by an already publicly traded company. By definition, seasoned equity offerings (SEOs) are the issue of more stocks by a firm after a primary issue. In order to achieve the greatest benefits from. FOREX TRAINING COURSE FOR FREE Log in In CCE controller new issue the enter issue from designed the to to the in. Skip Posted the you. Continuously serves is million behavior need same FortiClient. Also, a single know on useful must.

Growth opportunity theory attributes the equity offerings decisions to the presence of promising investment opportunities in a company. Owning a good investment project is considered as positive information for investors, which will cause the stock prices to be uptrend. Therefore, a company with growth potentials often favors financing for its investment projects through a stock offering to avoid a shift in shareholder funding to creditors Myers, From the corporate governance perspectives, market timing theory assumes that the administrators take advantage of corporate insider information, based on the market price deviation from the true value of shares, will proceed to adjust the time of stock offerings.

Moreover, according to the Choe, Masulis, and Nanda , the decision to issue more stocks is often implemented under the good times of the economy. Along with those theories, many empirical studies have been conducted for companies over the world such as Chikolwa and Kim , Huang , Virolainen , Abraham and Harrington , among others, showing various factors affecting the decision to offer equity and forms of equity offerings.

The study is conducted to fill this gap of the literature. The structure of the paper is as follows. Section 2 reviews the related literature of the research issue. The methodology is described in Section 3, followed by empirical results and discussions in Section 4.

Finally, we provide some concluding remarks in Section 5. Seasoned equity offerings to the public by companies can be split into two forms: stock dividend or issuing bonus stocks, and issuing rights to buy shares for existing shareholders.

More specifically, stocks dividend or issuing bonus stocks is a way to transfer retained earnings into equity capital of the company. As for the issuing of rights to buy shares, the company likes to raise more cash to increase its equity capital owner capital , also leading to the increase in the number of outstanding stock of the company. The literature has shown a number of determinants of decision to seasoned equity offerings. Return of company is one of the main factors influencing its equity offering decisions.

Furthermore, high profit companies may have to pay high taxes, therefore, they may tend to meet their capital needs by loan to exploit the benefits of the tax shield. However, according to Chikolwa and Kim , it is possible that companies like to enlarge their businesses as they get a higher ratio of profit.

Thus, a high profit company may have a higher possibility to offer more stocks. The theory of growth opportunity states that as companies have a higher turnover growth they may be ambitious to invest more in new projects, forcing them to seek more external financial resources in order to meet their capital demands.

These companies tend to issue more shares to raise capital instead of borrowing debts to minimize the sharing of benefits between shareholders and creditors, and also to mitigate any financial difficulties that may arise from financing by debts. Another factor affecting the decisions to seasoned equity offerings by firm is the market-to-book-value ratio.

According to the agency theory, the lower the rate of stocks the managers hold, the more conflict between managers and shareholders becomes. This conflict causes the managers to increase their control of power. As a result, they may use the stock issuance to exploit more financial resources from the minority shareholders and enhance their control power. As for company size, Huang ; Vu, Phan, and Dang states that the larger companies, the more stable the earnings, these companies may easily obtain more loan sources, so the probability that the company proceeds to seasoned stock offerings is less likely to occur.

This may help the company easily accessing to low interest loans; therefore, it may prioritize borrowing rather than implementing additional issues. However, McLaughlin, Safieddine, and Vasudevan find that the company size has a positive correlation with the decision to issue more shares.

Dividend payout ratio is another factor that is put forward in the literature as a determinant of seasoned equity offerings choice. On the contrary, Loderer and Mauer demonstrate that companies deciding to conduct seasoned stock offerings are less likely to pay or increase dividends than those being not.

The argument is that the issuing company paying no dividends or low dividend may have relatively more valuable investment opportunities than high dividend paying ones. Following the literature, the empirical model to investigate determinants on the decision to conduct seasoned equity offerings by companies is presented as follows:.

Panel data are collected from the audited financial statements of 99 listed companies on HOSE over the period of Companies in the sample are selected based on the following criteria: i listed companies must implement seasoned equity offerings during the research period; and ii financials are not included in the sample because their balance sheet structure is completely different from that of industrials.

Logit regression model with panel data is estimated by both the fixed effects method FEM and random effects method REM , and the appropriate method is selected using Hausman test. In addition, the tests related to the reliability of the regression model are also appropriately carried out.

Table 2 shows the correlation coefficients between independent variables in the regression model. In general, all the correlation coefficients between independent variables have absolute values less than 0. The descriptive statistics for all variables are shown in Table 3. As can be seen from the table, mean values of all variables are approximately equal between the two groups, i. While ROA of the seasoned equity offerings group is slightly higher than that of the non-seasoned equity offerings group 8.

These results indicate that seasoned equity offerings group seems to have better performance than the other group. The estimation results are presented in Table 4. Some important points are worth noting. First, given the very low VIF statistics that is, from 1. Thirdly, the Wald statistics for a groupwise heteroskedasticity diagnostic test are highly statistically significant at the one percent level, indicating that significant heteroskedasticity across firms is present.

Hence, the regression model is estimated by taking into account this heteroskedasticity, that is, using cluster-robust standard errors, clustering by the panel variable. Results from the logit regression model are presented in Table 4.

Obviously, large companies may have more advantages in raising capital than small ones, because they often diversify their businesses, have stable cash flows, and are also less likely to fail than smaller ones. The argument is that the more profitable a company is, the more likely it will have more internal resources, therefore, the external financing such as borrowing debts or issuing shares become less important. However, given the real situations of Vietnam, this result can be explained as follows.

Taking advantage of this, the more profitable listed companies may be issuing more shares to attract investors. This result is also consistent with previous studies of Chikolwa and Kim , and Ha This could be explained that companies with high revenue growth rates are often in the period of strong growth, increased market share and expansion in scale of operations.

On the other hand, companies with high growth opportunities may be motivated to issue shares to finance new projects, meeting the needs of investors. Besides, issuing additional shares instead of borrowing debts may help the company minimize the benefits sharing between shareholders and creditors. This could be explained by the fact that companies with a low dividend payout ratio may possess many investment opportunities, since they tend to retain profits to invest in new potential projects to generate higher profits in the future.

Those high potential companies are also in high demand of capital, therefore they have a higher incentive for additional issuance. This result is consistent with the study of Loderer and Mauer Along with the decision to issue additional shares, the choice of forms of issuance, i. Given those reasons, this study will further examine factors influencing decision to issue additional shares by separating different forms of issuance as a robustness check.

The results for robustness check are presented in Table 5 below. Two points are worth noting from the results. First, similar to the main model company size Size , returns on assets ROA , revenue growth rate REVG and dividend ratio DIV are still the same sign although in two cases the coefficients turn to statistically insignificant at the traditional levels i. If the company issues rights at the times when stock prices peak, investors may perceive that stock prices are overvalued, and that managers are trying to take advantages of this, they due to information asymmetry therefore may sell the stocks leading to a decrease in stock prices.

With regard to the result of financial leverage ratio variable, it shows that if the company has a higher financial leverage ratio, the probability that the company choose to do equity offerings by the form of stock dividends bonuses increases. This could be explained that since investors tend to underestimate the heavily indebted companies, issuing more shares by rights is a bad choice for these companies. Instead, those companies may choose stock dividend or bonus shares as form of equity offerings to reduce interest expenses or ensure a balanced ratio between debt and equity.

In short, the study has contributed the empirical evidence on factors influencing the decision on seasoned equity offerings of Vietnamese listed companies. The findings show that return on asset, revenue growth, firm size positively significantly stock offerings decision of companies, while the dividend payment ratio has a negative impact on the decision. These results partly help to confirm the appropriateness of growth opportunity theory for the listed companies in Vietnam stock market.

Regarding the equity-offering forms, stock bonuses or stock dividends are more likely chosen by companies with a high rate of return, a large size, a high debt ratio and a lower dividend payout ratio. Those results have several implications for both corporate governance, policy makers and investors. Click here to choose a searching target image or drag and drop a searching target image. Article Info. Introduction In the market economy, in order to survive and grow, the companies must have strong financial resources.

Literature Review Seasoned equity offerings to the public by companies can be split into two forms: stock dividend or issuing bonus stocks, and issuing rights to buy shares for existing shareholders. Research Methodology 3. Referral programme Partnership Programme. Support center. Capital System status. Get the app. Log In Trade Now. My account.

Learn to trade The basics of trading Glossary Seasoned equity offering. Share Article. Seasoned equity offering. What is a seasoned equity offering? Where have you heard about seasoned equity offerings? What you need to know about seasoned equity offerings. GME Swap Short:. Trade now. AAPL GOOG TSLA Secondary Market What is a secondary market? A secondary market is one where investors can trade financial Trade Now.

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