The Effect of Equity Issue Announcement on Large Cap, Mid Cap and Small Cap

University essay from Lunds universitet/Nationalekonomiska institutionen

Abstract: Abstract Title: The Effect of Equity Issue Announcement on Large Cap, Mid Cap and and Small Cap Date: 2011-09-02 Authors: Aleksandra Mraovic and Sukhlin Kaur Sidhu Advisor: Anne-Marie Pålsson Level: Bachelor thesis, 15 credits Theme: Department of Economics Keywords: Event study, efficient market hypothesis, abnormal returns, equity issues, market capitalization, Stockholm Stock Exchange Purpose: The main purpose of this study is to examine how announcement of equity issues affect companies within large cap, mid cap and small cap. Method: The study is based on 28 companies listed on the Stockholm Stock Exchange, which announced seasoned equity offerings during the time frame of 2007-01-01 to 2011-06-01. The companies studied are divided into three groups according to their market capitalization size: small cap, mid cap or large cap. The division enables us to observe any differences in reaction on stock prices upon the announcement. Since we want to see the impact an equity issue offering has on a stock price, an event study has been conducted. The data is collected from secondary sources through articles, literature and websites. Electronic websites as and Yahoo finance have been used to collect equity issue dates and stock prices. Conclusion: Our study showed a decline in stock prices after an equity issue announcement within all three market capitalization groups. Support was found in previous research and relevant theories. A t-test helped us confirm that no semi-strong market efficiency exists among the three market capitalization groups. Large Cap, mid cap and small cap all show different progress after an equity issue announcement.

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