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Adverse Selection, Spread Behavior, And Over‐The‐Counter Seasoned Equity Offerings

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  • Niranjan Tripathy
  • Ramesh P. Rao

Abstract

In this paper the effects of over‐the‐counter seasoned equity issuances on the percentage bid‐ask spreads around announcement and offer dates are examined. A declining spread in the pre‐announcement period suggests that resolution of information asymmetry begins well before the announcement date. Further, using issue size as a proxy for the extent of information asymmetry, we observe that spreads for larger issues reach “normal” levels before the first public disclosure of the offering. For smaller issues this occurs only on the offer date. Results are consistent with the dealer experiencing reduced adverse information risk as a result of information‐gathering efforts during the underwriting process.

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  • Niranjan Tripathy & Ramesh P. Rao, 1992. "Adverse Selection, Spread Behavior, And Over‐The‐Counter Seasoned Equity Offerings," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 15(1), pages 39-56, March.
    • Handle: RePEc:bla:jfnres:v:15:y:1992:i:1:p:39-56
    DOI: 10.1111/j.1475-6803.1992.tb00785.x
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    Cited by:

    1. Edith Ginglinger & Laure Matsoukis & Fabrice Riva, 2013. "Seasoned Equity Offerings: Stock Market Liquidity and the Rights Offer Paradox," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 40(1-2), pages 215-238, January.
    2. Lin, Ji-Chai & Wu, YiLin, 2013. "SEO timing and liquidity risk," Journal of Corporate Finance, Elsevier, vol. 19(C), pages 95-118.
    3. Spiess, D. Katherine & Affleck-Graves, John, 1995. "Underperformance in long-run stock returns following seasoned equity offerings," Journal of Financial Economics, Elsevier, vol. 38(3), pages 243-267, July.
    4. Kryzanowski, Lawrence & Lazrak, Skander & Rakita, Ian, 2010. "Behavior of liquidity and returns around Canadian seasoned equity offerings," Journal of Banking & Finance, Elsevier, vol. 34(12), pages 2954-2967, December.
    5. Kryzanowski, Lawrence & Rubalcava, Arturo, 2004. "Valuation effects of domestic and international seasoned equity offerings by Canadian cross-listed firms," Journal of Multinational Financial Management, Elsevier, vol. 14(2), pages 171-186, April.
    6. repec:dau:papers:123456789/3035 is not listed on IDEAS
    7. Labidi, Manel & Gajewski, Jean François, 2019. "Does increased disclosure of intangible assets enhance liquidity around new equity offerings?," Research in International Business and Finance, Elsevier, vol. 48(C), pages 426-437.
    8. repec:dau:papers:123456789/10852 is not listed on IDEAS
    9. Craig W. Holden & Stacey Jacobsen & Avanidhar Subrahmanyam, 2014. "The Empirical Analysis of Liquidity," Foundations and Trends(R) in Finance, now publishers, vol. 8(4), pages 263-365, December.
    10. repec:dau:papers:123456789/2939 is not listed on IDEAS

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