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The Effects of Operational Structure Change on Performance after Seasoned Equity Offerings

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  • Chihyoun Ahn

    (School of Management, Kyung Hee University, 26, Kyungheedae-ro, Dongdaemun-gu, Seoul 02447, Korea)

  • Mi-Ok Kim

    (Department of Tax Accounting, Baewha Women’s University, #2505 Jung Sim Kwan, 34 1st street, Pirundaero, Jongno-gu, Seoul 03039, Korea)

  • Hyung-Rok Jung

    (School of Management, Kyung Hee University, 26, Kyungheedae-ro, Dongdaemun-gu, Seoul 02447, Korea)

Abstract

Sustainability is directly linked to firms’ survival in competitive markets. To survive, firms need extra capital, and seasoned equity offerings (SEOs) are one sustainability strategy. Additional resources from SEOs lead to changes in firms’ operational structure, which brings future sustainability. This study investigates whether there is sustainability in firms’ operational structure and the effects of sustainable development on operational performance and market reaction. We measure the operational structure change of firms as three proxies: (1) the rate of increase in the number of operating segments, (2) the Berry–Herfindahl index using the ratio of sales of each operating segment out of total sales, and (3) the size of net investment in plant and equipment. Our results show that operational structure change has a statistically significant and positive correlation with long-term operating performance. In addition, there is no significant stock price response at first, but the operating performance in the next term is perceived as a favorable factor after three years. The results show that there are different responses in the stock market toward operational structure change. The empirical results confirm that firms with SEO have sustainable development in operational structure and that markets recognize firms’ sustainability strategy arising from SEOs.

Suggested Citation

  • Chihyoun Ahn & Mi-Ok Kim & Hyung-Rok Jung, 2017. "The Effects of Operational Structure Change on Performance after Seasoned Equity Offerings," Sustainability, MDPI, vol. 10(1), pages 1-17, December.
    • Handle: RePEc:gam:jsusta:v:10:y:2017:i:1:p:88-:d:124917
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    Cited by:

    1. Ye Fan & Zhicheng Zhang & Xiaoli Zhao & Haitao Yin, 2018. "Interaction between Industrial Policy and Stock Price Volatility: Evidence from China’s Power Market Reform," Sustainability, MDPI, vol. 10(6), pages 1-19, May.

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