Do seasoned offerings improve the performance of issuing firms? Evidence from China

Zhang, D; Wu, Y; Ye, Q; Liu, J

Abstract

This study provides new evidence that the performance of issuing firms varies by issue type, based on survival analysis methods. Our non-parametric results show that firms raising capital through rights issues, and notably through cash offers, experience a greater risk of delisting following issuance, as compared to those issuing convertible bonds. Our Cox model analyses demonstrate that plain equity issues, in contrast to convertible issues, are subject to different degrees of regulatory discipline, obligations and incentives in shaping survival trajectory. Further, high ownership concentration, agency issues intrinsic to equity offerings, weak shareholders' protection, and corporate ownership and governance and corporate control development at the time of an offer markedly influence post-issue survival. Plain equity issues, notably cash offers, are strongly linked with the agency costs of free cash flows. A large and truly independent board, allied to a separation of CEO and chairman powers, acts as a primary restraint on managers' self-interested behaviour. Such a cohesive governance mechanism can restrain rent-seeking in the firm's fundraising initiative. These observations hold when we take into account information available before an issue, at the time of an issue, and after an issue, demonstrating the robustness of our findings.

Citation

Zhang, D., Wu, Y., Ye, Q., & Liu, J. (2019). Do seasoned offerings improve the performance of issuing firms? Evidence from China. International Review of Financial Analysis, 62(Mar 19), 104-123. https://doi.org/10.1016/j.irfa.2018.08.001

• Journal Article Type: Article
• Acceptance Date: Aug 8, 2018
• Online Publication Date: Aug 23, 2018
• Publication Date: Mar 1, 2019
• Deposit Date: Sep 11, 2018
• Publicly Available Date: Feb 23, 2020
• Journal: International Review of Financial Analysis
• Print ISSN: 1057-5219
• Publisher: Elsevier
• Volume: 62
• Issue: Mar 19
• Pages: 104-123
• DOI: https://doi.org/10.1016/j.irfa.2018.08.001
• Publisher URL: https://doi.org/10.1016/j.irfa.2018.08.001
• Related Public URLs: https://www.journals.elsevier.com/international-review-of-financial-analysis
• Additional Information: Additional Information : Dayong Zhang thanks the National Natural Science Foundation of China (NSFC) [grant number 71573214] and the 111 Project [grant number B16040] for financial support.