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Corporate diversification and seasoned equity offering performance

Author

Listed:
  • Cathy Xuying Cao

    (Seattle University)

  • Chongyang Chen

    (Pacific Lutheran University)

  • Ekaterina E. Emm

    (Seattle University)

  • Bo Han

    (Seattle University)

Abstract

We document that diversified firms experience less negative seasoned equity offering (SEO) announcement returns than focused firms. The relatively better SEO announcement stock performance of diversified firms is more pronounced among issuers with operations across unrelated industries. Furthermore, following the SEO announcement, diversified firms’ stock returns exhibit post-announcement drift, suggesting a delay in information assimilation. Our findings support the information complexity hypothesis that a more sophisticated organizational form leads to a higher degree of complexity in information processing by investors, which in turn causes a delay in the impounding of information into stock prices.

Suggested Citation

  • Cathy Xuying Cao & Chongyang Chen & Ekaterina E. Emm & Bo Han, 2022. "Corporate diversification and seasoned equity offering performance," Review of Quantitative Finance and Accounting, Springer, vol. 58(2), pages 581-614, February.
    • Handle: RePEc:kap:rqfnac:v:58:y:2022:i:2:d:10.1007_s11156-021-01003-1
    DOI: 10.1007/s11156-021-01003-1
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    More about this item

    Keywords

    Corporate diversification; Information complexity; Seasoned equity offerings;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance

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