SEO Risk Dynamics

摘要

We theoretically and empirically investigate firm-level risk dynamics around seasoned equity offerings (SEOs). Empirically, beta increases before SEOs and decreases gradually thereafter. Using real options theory, conunitment-to-invest generates a gradual post-issuance beta decline whereas instantaneous investment and time-to-build do not. In a behavioral theory, systematic mispricing can cause increasing pre-issuance and decreasing post-issuance risk but idiosyncratic mispricing cannot. In the empirical cross-section, investment, own-firm runup, SEO proceeds, and primary issuance-associated with the real options theory-predict beta declines. Sentiment proxies have weaker effects in the full sample, but are significant in a post-1996 subsample. SEOs coincide with low firm- and market-volatility, suggesting volatility-timing in corporate decisions.