Managerial Optimism or Managerial Opportunism : From a Seasoned Equity Offerings Perspective

This study explores whether high-growth firms use accruals as a signal instead of a misleading device in seasoned equity offerings (SEOs). Using firms listed on the NYSE, AMEX, and NASDAQ from 1987 to 2010 as our sample and the subsequent 5 years of the sample firms to examine ex-post performance, we find a positive relation between pre-SEO discretionary accruals and SEO announcement returns only for high-growth companies. We also investigate the relation between pre-SEO discretionary accruals and post-SEO long-run returns and do not find a negative relation for the high-growth subsample. Finally, we find a positive relation between pre-SEO accruals and the long-run operating performance for the high-growth subsample. Our findings suggest that high-growth firms are more likely to use high abnormal accruals during SEOs as a signal of managerial optimistic perspectives, especially under high information asymmetry. Alternatively, managerial opportunism is more likely to appear in non-high-growth firms