Market reaction to seasoned offerings in China

Liu, JL; Akbar, S; Shah, R; Zhang, D; Pang, D

Abstract

This study examines stock market reaction to the announcement of various forms
of seasoned issues in China. Our empirical evidence demonstrates that market reactions differ
in ways that suggest a difference between management’s internal assessment and the
market’s assessment of the stock price. The market responds unfavourably to the
announcement, notably in the case of rights issues and also with regard to open offers. Private
placements experience an unfavourable pre-announcement reaction, which contrasts with the
favourable reaction after the event. Convertible bond issues generate positive excess returns
consistent with the market’s confidence that they can help to align management and
shareholders’ interests. Further investigation shows that market reaction is related to factors
specific to the issuer and issue by reference to the period immediately surrounding the issue.
Specifically, ownership concentration, agency matters connected with equity offerings,
investor protection connected with fund allocation and security pricing, and the influence of
powerful moneyed interests together provide an instructive insight into market reaction.
Institutional inefficiency pertaining to underwriting, auditing, analysts’ forecasts and credit
ratings are found to have a weak association with market price, consistent with due public
scepticism concerning management and their gatekeepers.

Citation

Liu, J., Akbar, S., Shah, R., Zhang, D., & Pang, D. (2016). Market reaction to seasoned offerings in China. Journal of Business Finance and Accounting, 43(5-6), 597-653. https://doi.org/10.1111/jbfa.12198

• Journal Article Type: Article
• Acceptance Date: Feb 10, 2016
• Online Publication Date: Feb 28, 2016
• Publication Date: Jul 27, 2016
• Deposit Date: Feb 29, 2016
• Publicly Available Date: Sep 19, 2016
• Journal: Journal of Business Finance and Accounting
• Print ISSN: 0306-686X
• Electronic ISSN: 1468-5957
• Publisher: Wiley
• Volume: 43
• Issue: 5-6
• Pages: 597-653
• DOI: https://doi.org/10.1111/jbfa.12198
• Publisher URL: http://dx.doi.org/10.1111/jbfa.12198
• Related Public URLs: http://onlinelibrary.wiley.com/journal/10.1111/(ISSN)1468-5957