Stock Mispricing, Corporate Governance, and SEOs Market Timing

Purpose
This paper examines the presence of stock market timing in Thailand. We explore the potential impact that equity overpricing, stock ownership, and corporate board structure have on equity market timing.
Design/methodology/approach
We use a comprehensive dataset of 1,747 seasoned equity offerings (SEOs) in Thailand obtained from hand-picked data from 2000 to 2020. The empirical methods adopted are generalized least squares (GLS), probit regressions, probit model with continuous endogenous covariates (IV-probit) and instrumental variable (IV) with a two-stage least squares (2SLS) regression approaches. To determine the presence of equity overpricing the intrinsic value of a stock is estimated using the discounted cash flow (DCF) method, the residual income (RIM) method, Tobin’s q ratio and abnormal stock returns.
Findings
We find that firms prefer to time the equity market by issuing SEOs when the stock market is hot. Moreover, hot market timers tend to keep the SEO proceeds as cash and short-term investments, which confirms that one of the reasons in conducting the equity offering is taking advantage of windows of opportunity. We find results consistent with insiders seeking to exploit information asymmetries and/or the lack of rationality of outsiders. However, the effect of the factors we consider including equity overpricing, ownership and board structures differs depending on the timing strategy and the method of stock valuation selected by the firms.
Research limitation/implication
We find that a number of complex relationships determine the presence of stock market timing, and it would be interesting to investigate these further in future research.
Practical implications
Our results have policy implications for regulators, managers and investors.
Originality/value
We provide the most comprehensive results to date about SEOs in Thailand. We introduce many explanatory variables and methodological innovations to the literature on SEOs.