Ownership Structure and the Choice of SEO Issue Method in the UK

Panos Andrikopoulos, Ji Sun, Jie Guo

Research output: Contribution to journalArticle

1 Citation (Scopus)
14 Downloads (Pure)

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.
Original languageEnglish
Pages (from-to)378-396
Number of pages19
JournalInternational Journal of Managerial Finance
Volume13
Issue number4
Early online date19 Jun 2017
DOIs
Publication statusPublished - 2017

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Keywords

  • Ownership structure
  • seasoned equity offerings
  • issue method
  • market timing

ASJC Scopus subject areas

  • Finance

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