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

Research output: Working paper

Publication date2011
Place of PublicationLancaster
PublisherLancaster University
Number of pages51
<mark>Original language</mark>English


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.