Over the past few decades, firms in major international markets, including Australia, the United Kingdom, Hong Kong, the United States and Canada, have displayed a growing preference for equity financing through seasoned equity offerings (SEOs) in place of debt financing. Notably, the Australian market is among those that have experienced the most prolific issuances of SEOs because of the quick turnaround time, the freedom to choose the amount of capital to be raised and the control over the issuance price of SEOs. These benefits are some of the many reasons that SEOs have been favoured by firms as the primary mechanism for raising capital, particularly during periods of economic disruption. Given that the popularity of SEOs has increased exponentially among Australian Securities Exchange (ASX) listed firms, it is imperative that these firms also consider the effects of their SEO decision on their shareholders, from the perspective of return volatility. Return volatility is important to shareholders for it is among the most widely used metric to assess investment risk. During SEO announcements, the level of shareholder trading activity typically increases, which may transform normal levels of return volatility into abnormal levels. The increase in abnormal return volatility increases risk and may have negative consequences on a shareholder's portfolio. Very few studies have examined the relationship between seasoned equity offerings (SEOs) and abnormal return volatility, which presents a research gap. Specifically, firms are unaware about the SEO types that induce abnormal return volatility and therefore will be unable to decide on the most appropriate type. To date, a firm's main consideration is to choose an SEO type that will help it satisfy their capital needs, and thus, it disregards the likely impact of this decision on its existing shareholders. Hence, this thesis seeks to address this gap in the literature by providing a framework to help firms make SEO decisions that are more considerate to their shareholders. To achieve this goal, an event study methodology is employed to verify the presence of abnormal return volatility within ASX 200 firms in 1998-2020, by using multiple proxies. Overall, this thesis demonstrates that the SEO type and the sector in which a firm operates will both have a significant effect on abnormal return volatility during SEO announcements, which needs to be addressed. It highlights that some SEO types are more appropriate to use in general but may not necessarily be as appropriate specifically during economic disruption periods.
Date of Award | 2022 |
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Original language | English |
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- going public (securities)
- stock exchanges
- stocks
- rate of return
- Australia
Examining the determinants of abnormal return volatility during seasoned equity offerings
Prasad, M. (Author). 2022
Western Sydney University thesis: Doctoral thesis