Seasoned equity offerings, operating performance and overconfidence: Evidence from the UK

Prior research on seasoned equity offerings in UK shows that equity issuers report a significant long-term underperformance in the period following the event. However, the factors contributing to such underperformance are not yet fully explored. Using a sample of rights issues for the period 1988-1998, this study suggest that the long-term underperformance is significantly related to a deterioration of companies' operating fundamentals in the post-offering period. Further comparison between "Best" and "Worst" post-issue performers reveals that long-term underperformance is predominantly robust in the case of fastgrowing firms with over-optimistic management. This evidence is consistent with the managerial overconfidence and "empire-building" hypotheses.