Public Seasoned Equity Offerings and Asymmetric Information: An Investigation of Abnormal Returns, Discounts and Offer type choice

Abstract: This thesis attempts to assess the effect of information asymmetry between firms and investors on indirect issuing costs in two offer types of public SEOs, fully-marketed and accelerated offers. Furthermore, the thesis investigates if firms that have higher information asymmetry are more likely to prefer one offer type to another. We define information asymmetry as insiders having information on the firm that is not available to investors and measure information asymmetry by using five different proxies. In an event study, we test if the cumulative abnormal return around the SEO window is more negative for fully-marketed offers than for accelerated offers. We conclude that fully-marketed offers have a significantly more negative cumulative abnormal return than accelerated offers. Moreover, we find marginal empirical evidence for the hypothesis that information asymmetry has a larger effect on the cumulative abnormal return in fully-marketed offers than in accelerated offers. In the second part of the thesis, we hypothesise that information asymmetry only affects the offer price discount in accelerated offers, as information asymmetry is reduced during the marketing period prior to a fully-marketed offer. We find that information asymmetry has no effect on the offer price discount of fully-marketed offers. In addition, we affirm the hypothesis that information asymmetry has an impact on the offer price discount of accelerated offers. Finally, we hypothesise that firms with higher information asymmetry are more likely to choose a fully-marketed offer than an accelerated offer. We find supporting evidence for the hypothesis that information asymmetry affects the offer type choice.