Ownership structure and the choice of SEO issue method in the UK

Author:

Andrikopoulos PanagiotisORCID,Sun Ji,Guo Jie

Abstract

Purpose The purpose of this paper is to analyse the role of ownership characteristics in a firm’s choice of alternative seasoned equity offering (SEO) methods, offer price discounts, and market reactions to such announcements within the UK setting. Design/methodology/approach The study examines 697 SEO events of firms traded in the UK during the period 1998 to 2012 using multivariate and binomial logistic regression models. Ordinary least square models are also used to examine how ownership variables affect offer price discounts and stock market performance during the announcement of such corporate events. Findings The authors show that placings and open offers (OOs) are the preferred methods for issuing equity by firms with higher managerial ownership. Thus, the evidence strongly supports the prediction of the entrenched management hypothesis. Moreover, the probability of choosing a combination of placings and OOs is also found to be significantly related to issue size, offer discount, leverage, and previous stock performance. The results show that pre-issue market conditions have a significant effect on the choice of issue method with rights offers (ROs) and the combination of placings and OOs primarily utilised by firms for issuing equity during hot market periods. Originality/value Unlike prior SEOs’ studies in the UK that predominantly concentrate on the use of ROs and placings, this study examines, for the first time, the link between OOs and the combination of placings and OOs with ownership concentration. The authors also investigate how offer price discounts are related to the firms’ ownership structure, various company micro-characteristics and the wider market conditions.

Publisher

Emerald

Subject

Finance,Business, Management and Accounting (miscellaneous)

Reference41 articles.

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2. Seasoned equity offers and rights issues: a review of the evidence;The European Journal of Finance,1998

3. Do underwriters certify value? Evidence from UK rights issues and open offers;Journal of Business Finance and Accounting,2002

4. Block buying and choice of issue method in UK seasoned equity offers;Journal of Business Finance and Accounting,2010

5. Are the discounts in seasoned equity offers due to inelastic demand?;Journal of Business Finance and Accounting,2014

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