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Does liquidity risk explain low firm performance following seasoned equity offerings?

Research output: Working paper

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Publication date2011
Place of PublicationLancaster
PublisherLancaster University
Number of pages51
Original languageEnglish

Abstract

By making seasoned equity offerings (SEO), firms can improve the liquidity of their shares and lower their costs of capital. This paper examines whether SEO firms achieve such a liquidity gain and explores the role of liquidity risk in explaining their long-run performance. Consistent with predictions, SEO firms experience significant post-issue improvements in liquidity and reductions in liquidity risk. Size and book-to-market matching fails to control for these liquidity effects, generating the low long-term post-SEO performance documented in the literature. SEO firms show normal long-term performance after adjusting for liquidity risk.