The Marketing of Seasoned Equity Offerings
Speaker
Abstract
| Accelerated seasoned equity offerings (SEOs), which include bought deals and accelerated bookbuilt offers, have increased dramatically in the U.S. and globally recently. Accelerated offers are cheaper than traditional fully marketed offers in terms of direct issue costs. To explain why some issuing firms choose a fully marketed offer instead of an accelerated offer, we posit that the marketing effort associated with the traditional method flattens the issuer’s demand curve. Empirical analysis shows that both the pre-issue elasticity of the issuing firm’s demand curve and the offer size are important determinants of the offer method. For an issuing firm that is average in other ways, if it has an above average relative issue size of 30% and an inelastic demand curve at the 90th sample percentile, the probability of using an accelerated SEO is only 1.2%. On the other hand, if the issuer has a below average relative issue size of 10% and an elastic demand curve at the 10th sample percentile, the probability of an accelerated offer increases significantly to 34%. In our analysis, the elasticity of demand at the time of issuance is endogenous. |
| The Erasmus Finance Seminar is jointly sponsored by ERIM and the Tinbergen Institute. |
| Contact information: |
| Viorel Roscovan |
