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Seasoned Equity Offerings For New Investment And The Information Content Of Insider Trades

Author

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  • Dana J. Johnson
  • Jan M. Serrano
  • G. Rodney Thompson

Abstract

Significant negative valuation effects are widely acknowledged for firms announcing seasoned equity offerings. This result is consistent with theoretical models linking new equity issues to increased adverse‐selection costs, lower management ownership in the firm, misuse of free cash flow, or expectations for earnings declines. Also increasingly evident, insiders trade around corporate announcements. We test the hypothesis that insider trading and announcements of new equity issues serve as joint signals in the market's evaluation of prospective capital investment projects. Our findings are consistent with the hypothesis that insider trading is related to market reaction to announcements of new equity issues.

Suggested Citation

  • Dana J. Johnson & Jan M. Serrano & G. Rodney Thompson, 1996. "Seasoned Equity Offerings For New Investment And The Information Content Of Insider Trades," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 19(1), pages 91-103, March.
    • Handle: RePEc:bla:jfnres:v:19:y:1996:i:1:p:91-103
    DOI: 10.1111/j.1475-6803.1996.tb00586.x
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    Cited by:

    1. Chih-Jen Huang, 2010. "The joint decision to manage earnings through discretionary accruals and asset sales around insider trading: Taiwan evidence," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 34(3), pages 308-325, July.
    2. Suk, Inho & Wang, Mengmeng, 2021. "Does target firm insider trading signal the target's synergy potential in mergers and acquisitions?," Journal of Financial Economics, Elsevier, vol. 142(3), pages 1155-1185.
    3. Bruce Burton & A. Alasdair Lonie & David Power, 2003. "Insider trading, growth opportunities and the market reaction to new financing announcements," The European Journal of Finance, Taylor & Francis Journals, vol. 9(4), pages 301-322.
    4. Arturo Rubalcava, 2021. "Determinants Of Price Response To Canadian Bought Deals And Marketed Underwritten Equity Offers: Evidence Before And After The Canadian Sox," The International Journal of Business and Finance Research, The Institute for Business and Finance Research, vol. 15(1), pages 19-32.
    5. Ken C. Yook & Partha Gangopadhyay & George M. McCabe, 1999. "Information Asymmetry, Management Control, And Method Of Payment In Acquisitions," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 22(4), pages 413-427, December.

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