Date of Award

Fall 1998

Document Type


Degree Name

Doctor of Philosophy (PhD)


Business Administration-Finance

Committee Director

Kenneth Yung

Committee Member

Mohammad Najand

Committee Member

Vinod Agarwal


Empirical work on the market's reaction to seasoned equity offerings has rarely considered the impact of the issuing firm's leverage level or its corporate structure. This work is an attempt to include these parameters in order to better understand the market's reaction to such issue announcements.

The current finance literature recognizes the fact that leverage plays an important role in assessing the value of the firm. Leverage has both negative and positive impacts on the value of a firm (McConnell and Servaes, 1995), and thus, has both negative and positive impacts on the market's reaction to seasoned equity offerings. This work attempts to isolate the positive and negative impacts of leverage, and finds that whether the issue is viewed negatively or positively depends on the nature of the issue and the issuer's characteristics.

Contradicting the traditional view of the positive impact of growth opportunities on the market's reaction to issue announcements, this paper argues that the impact of growth opportunities on seasoned equity offerings should be negative. This is because most of the issuing firms are high growth firms, and the issue itself cannot be a success unless the issue implies a growth opportunity. The marginal growth impact of the issue becomes the dominant force in determining the direction of the market reaction. As the marginal growth impact of issue investment is greater for low-growth opportunity firms, the low-growth opportunity firms have a less negative market reaction to seasoned equity announcements than do high-growth opportunity firms. Additionally, high growth opportunity firms also suffer from a higher level of information asymmetry. The empirical findings overwhelmingly support the both arguments.

While examining the impact of corporate structure on the market's reaction to seasoned equity offerings, it is found that high-focused firm's seasoned equity issue announcements have a less negative market reaction than those of low-focused diversified firms. But firms which have increased their focus level in the recent past have a greater negative market reaction to an equity issue than do the firms which have decreased their focus. It is argued that issue announcements preceded by divestiture makes the market skeptical about the financing need of the issuer.


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