Does market microstructure matter for corporate finance? Theory and evidence on seasoned equity offering decisions

Ming Yan William Cheung, Scott Fung, Lewis Tam

Research output: Contribution to journalArticle

2 Citations (Scopus)

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 languageEnglish
Pages (from-to)149-161
Number of pages13
JournalQuarterly Review of Economics and Finance
Volume60
DOIs
Publication statusPublished - 2016 May 1
Externally publishedYes

Fingerprint

Seasoned equity offerings
Corporate finance
Market microstructure
Illiquidity
Market liquidity
Price impact
Price informativeness
Information production
Standard deviation
Bid/ask spread
Empirical analysis
Stock prices

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 journalArticle

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