Abstract
This study presents a theoretical model and empirical analysis to examine how market microstructure affects Seasoned Equity Offering (SEO) decisions from the perspective of information production associated with market liquidity. We present two sets of new findings. First, the market illiquidity of a firm's stock (measured by price impact and bid-ask spread) has a significantly negative impact on the probability of SEO, as well as on the size of the offering. A decrease of the pre-issue price impact by one standard deviation is associated with an increase of normalized SEO proceeds of 9.7%. The impact of market illiquidity is larger when pre-SEO price is less informative. Second, SEO decision predicts a more informative stock price. Our results are robust to alternative measures of market liquidity, price informativeness and SEO.
| Original language | English |
|---|---|
| Pages (from-to) | 149-161 |
| Number of pages | 13 |
| Journal | Quarterly Review of Economics and Finance |
| Volume | 60 |
| DOIs | |
| Publication status | Published - 2016 May 1 |
| Externally published | Yes |
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Keywords
- Corporate financing decision
- Market liquidity
- Market microstructure
ASJC Scopus subject areas
- Finance
- Economics and Econometrics
Cite this
Does market microstructure matter for corporate finance? Theory and evidence on seasoned equity offering decisions. / Cheung, Ming Yan William; Fung, Scott; Tam, Lewis.
In: Quarterly Review of Economics and Finance, Vol. 60, 01.05.2016, p. 149-161.Research output: Contribution to journal › Article
}
TY - JOUR
T1 - Does market microstructure matter for corporate finance? Theory and evidence on seasoned equity offering decisions
AU - Cheung, Ming Yan William
AU - Fung, Scott
AU - Tam, Lewis
PY - 2016/5/1
Y1 - 2016/5/1
N2 - This study presents a theoretical model and empirical analysis to examine how market microstructure affects Seasoned Equity Offering (SEO) decisions from the perspective of information production associated with market liquidity. We present two sets of new findings. First, the market illiquidity of a firm's stock (measured by price impact and bid-ask spread) has a significantly negative impact on the probability of SEO, as well as on the size of the offering. A decrease of the pre-issue price impact by one standard deviation is associated with an increase of normalized SEO proceeds of 9.7%. The impact of market illiquidity is larger when pre-SEO price is less informative. Second, SEO decision predicts a more informative stock price. Our results are robust to alternative measures of market liquidity, price informativeness and SEO.
AB - This study presents a theoretical model and empirical analysis to examine how market microstructure affects Seasoned Equity Offering (SEO) decisions from the perspective of information production associated with market liquidity. We present two sets of new findings. First, the market illiquidity of a firm's stock (measured by price impact and bid-ask spread) has a significantly negative impact on the probability of SEO, as well as on the size of the offering. A decrease of the pre-issue price impact by one standard deviation is associated with an increase of normalized SEO proceeds of 9.7%. The impact of market illiquidity is larger when pre-SEO price is less informative. Second, SEO decision predicts a more informative stock price. Our results are robust to alternative measures of market liquidity, price informativeness and SEO.
KW - Corporate financing decision
KW - Market liquidity
KW - Market microstructure
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UR - http://www.scopus.com/inward/citedby.url?scp=84939205371&partnerID=8YFLogxK
U2 - 10.1016/j.qref.2015.06.003
DO - 10.1016/j.qref.2015.06.003
M3 - Article
VL - 60
SP - 149
EP - 161
JO - Quarterly Review of Economics and Finance
JF - Quarterly Review of Economics and Finance
SN - 1062-9769
ER -