Asymmetric Information and Investor Reactions to SEOs: An Empirical Study of the Swedish Stock Market

Abstract: We test to see if prior stock return and measures of growth opportunities can explain abnormal returns of firms announcing a seasoned equity offering, as indicated by theories of asymmetric information. Announcing the SEO in connection with an acquisition is found to have a significant positive impact on announcement day returns. The stock return of the firm preceding the announcement is also found to have a significant positive impact, contrary to the negative impact predicted, while dividend yield and price to book ratio of equity do not have a significant correlation with the abnormal returns. The contradictive results imply that the study can not corroborate, neither reject, the importance of growth opportunities and prior stock return in announcement day abnormal returns.