Please use this identifier to cite or link to this item: http://scholarbank.nus.edu.sg/handle/10635/147482
Title: INVESTOR SENTIMENT EFFECTS ON THE INDIRECT COSTS OF SEASONED EQUITY OFFERS: AN EMPIRICAL STUDY
Authors: KANG SU YING REBECCA
Issue Date: 2009
Citation: KANG SU YING REBECCA (2009). INVESTOR SENTIMENT EFFECTS ON THE INDIRECT COSTS OF SEASONED EQUITY OFFERS: AN EMPIRICAL STUDY. ScholarBank@NUS Repository.
Abstract: This study investigates investor sentiment effects on three indirect costs of seasoned equity offers: discounting, announcement day returns and probability of withdrawal. Using a sample of 3,982 US completed seasoned equity offers and 381 withdrawn offers from 1985 to 2006, the empirical results address several competing hypotheses that are developed in this paper. There is strong evidence to establish a positive correlation between investor sentiment and the extent of discounting. This counter intuitive conclusion suggests that issuers should consider this indirect cost in their market timing decisions. Limited evidence is presented to support the significant impact of sentiment on market reactions to the announcements of seasoned equity offers. On the other hand, there is some evidence that negative sentiment changes during registration periods increase the likelihood for firms to withdraw from an offer. Beyond the analysis of aggregate investor sentiment, this paper also examines the sensitivity of these sentiment effects on the implicit costs of seasoned equity offers in different types of firms. This is conducted on three levels: firm size, volatility and institutional take up of new shares. Discounting appears to be more sensitive to sentiment effects in smaller firms as compared to larger firms. The findings also provide some support that discounting in low institutional participation firms are more affected by investor sentiments. Interestingly, there is contravening evidence that discounting in low volatility firms has a stronger correlation to sentiment than high volatility firms. Results for sentiment sensitivity on announcement day returns are inconclusive.
URI: http://scholarbank.nus.edu.sg/handle/10635/147482
Appears in Collections:Bachelor's Theses (Restricted)

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