Cash-Rich Seasoned Equity Issuers
We document that a substantial fraction of seasoned equity issuers have large pre-offering excess cash holdings. Cash-rich seasoned equity issuers are not easily reconcilable with the traditional pecking order theory, or with recent empirical findings suggesting that urgent cash requirements drive seasoned equity offerings (SEOs). We examine the role of market timing, agency costs, precautionary motives, repatriation taxes, real options, and negative cash flows in driving cash-rich equity issuers. We find that cash-rich equity issuers are more overvalued, use SEO proceeds more opportunistically, and have worse post-SEO operating and long-term stock price performance than non-cash-rich issuers, consistent with a market timing motive. However, we do not detect differences in SEO announcement returns between cash-rich and non-cash-rich issuers. Our results, which are robust to alternative empirical specifications, imply that investors should place a negative value on firms’ excess cash holdings when assessing an SEO announcement
Year of publication: |
2023
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Authors: | Chen, Mengqian ; Dutordoir, Marie ; Strong, Norman C. |
Publisher: |
[S.l.] : SSRN |
Saved in:
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