Handbook of Corporate Finance Empirical Corporate Finance Volume 1

Ch. 6: Security Offerings 317

Ta b l e 1 3

(Continued)

Study Sample

size

Sample

period

AR

(%)

Bethel and Krigman (2004)b 747 1992–2001 − 0. 24

Bethel and Krigman (2004) 391 1992–2001 − 1. 27 ∗

Autore, Kumar, and Shome (2004)c,d 156 1990–2003 − 1. 16

The table focuses on studies that use daily stock return to measure the SEO announcement effectAR,and

where the flotation method may be reasonably deduced from the sample selection criteria. The sample must

include primary offerings, possibly in combination with secondary equity offerings. Some studies measure

ARover the two-day window [− 1 ,0] while others use a three-day window [− 1 ,+1], and the table does not

make a distinction between these. Some studies also separate out industrials from utilities, and when they

do, we report results averaged across both issuer types. TheARin the panel heading is the average across

the studies in the panel, weighted by the respective sample sizes. The superscript*indicates that theARis

significantly different from zero at the 1% level.

aSample is restricted to the first SEO following the IPO.

bThe event day is the shelf registration day (not the offering announcement).

cSample is restricted to firms that issuebothshelf and nonshelf registered shares.

dThis abnormal return is the sum of the abnormal returns around the registration and offering dates.

number of studies of SEO announcement effects after 1986. However, more recently,
Jegadeesh, Weinstein, and Welch (1993), Slovin, Sushka, and Bendeck (1994), Denis
(1994), Bayless and Chaplinsky (1996), Bethel and Krigman (2004), Heron and Lie
(2004), andD’Mello, Schlingemann, and Subramaniam (2005)all confirm that the mar-
ket reaction to firm commitment offerings in the U.S. is on average negative and about
−2%. Overall, over the period 1963–1995 and using a sample-weighted average, the
market reacted to a firm commitment equity offering announcement by discounting the
second-hand market price of the issuer’s shares, resulting in a statistically significant
ARfc=− 2 .22%.
A second striking result from the 1980s is the finding ofWruck (1989)of a sig-
nificantly positive two-day market reaction of 1.9% to 128 announcements of equity
private placements. The type of security sold in her private placements includes pri-
marily common stock (101 cases) but also preferred stock, convertible preferred stock,
and warrants. Thus, Wruck’s sample has a different equity security composition than
the studies of firm commitment SEOs. As shown in Panel (b) ofTable 13, several recent
studies using substantially expanded samples confirm her finding of a significantly posi-
tive announcement effect. These includeHerzel and Smith (1993), Hertzel et al. (2002),

contains mostly offering information. Hence, the event dates since 1985 reflect issues that are more likely to
be anticipated because the announcement of an equity issue is typically made earlier (by days or weeks) via
news-wire services than the WSJ listing. This biases the abnormal return estimate”.