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SEO firms' lottery-like characteristics, institutional ownership, and long-run performance

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  • Hsu, Junming
  • Yang, Tung-Hsiao
  • Sung, Po-Shen

Abstract

This study investigates whether firms' lottery-like characteristics (low price, great idiosyncratic volatility, and high skewness) affect institutions' participation in share allocation around seasoned equity offerings (SEOs) and firms' post-issue long-run performance. The results show that the level of institutional ownership of lottery-like firms is lower than non-lottery-like firms, but these lottery-like firms attract more new institutions to purchase SEO shares. When this study controls for related factors (e.g., changes in institutional ownership and systematic risk), lottery-like characteristics negatively associate with issuers' long-run performance. These results indicate that those lottery-like firms that institutions favor are able to improve their performance after SEOs but still underperform non-lottery-like firms. This result implies that many institutional investors are overoptimistic about the investment opportunities of lottery-like firms.

Suggested Citation

  • Hsu, Junming & Yang, Tung-Hsiao & Sung, Po-Shen, 2016. "SEO firms' lottery-like characteristics, institutional ownership, and long-run performance," Journal of Business Research, Elsevier, vol. 69(6), pages 2160-2166.
    • Handle: RePEc:eee:jbrese:v:69:y:2016:i:6:p:2160-2166
    DOI: 10.1016/j.jbusres.2015.12.024
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    2. Saeed Md. Abdullah & Simon Zaby, 2021. "Seasoned Equity Offerings and Differences in Share-Price Impact by Firm Categories," IJFS, MDPI, vol. 9(3), pages 1-10, July.
    3. Ching-Chih Wu & Tung-Hsiao Yang, 2018. "Insider Trading and Institutional Holdings in Seasoned Equity Offerings," JRFM, MDPI, vol. 11(3), pages 1-14, September.
    4. Berggrun, Luis & Cardona, Emilio & Lizarzaburu, Edmundo, 2019. "Extreme daily returns and the cross-section of expected returns: Evidence from Brazil," Journal of Business Research, Elsevier, vol. 102(C), pages 201-211.
    5. Andreas Oehler & Julian Schneider, 2022. "Gambling with lottery stocks?," Journal of Asset Management, Palgrave Macmillan, vol. 23(6), pages 477-503, October.
    6. Andreas Oehler & Julian Schneider, 2023. "Social trading: do signal providers trigger gambling?," Review of Managerial Science, Springer, vol. 17(4), pages 1269-1331, May.

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