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The market and operating performance of Chinese seasoned equity offerings

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  • Ohannes George Paskelian
  • Stephen Bell

Abstract

This article examines the short-term market and the long-term operating performance of Chinese seasoned equity issues (Seasoned Equity Offerings (SEOs)). Employing data for 596 rights offerings and 181 private placements for the period 1998 to 2004, we find significant positive short-term market reaction for both rights offerings and private placements; however, the long-term operating performance of the firms offering private placements is significantly better than the rights offering firms. In China, firms issuing rights offerings are required to adhere to strict rules set by the Chinese Securities Regulatory Commission (CSRC). These firms must meet minimum standards with respect to earnings and profitability before being permitted to issue rights offerings. Firms issuing private placements are not required to meet the same strict earnings/profitability requirements. Our results suggest that the regulatory oversight is important for the short-term market reaction of the equity issuing firms. However, it is not a determinant of the long-term performance of the firms. Also, our results provide some evidence that firms issuing rights offerings may manipulate their past earnings and profitability measures in order to reach the requirements set forth by the CSRC. The identity of the equity buyer seems to be a better determinant of the long-term profitability of the equity issuing firms.

Suggested Citation

  • Ohannes George Paskelian & Stephen Bell, 2010. "The market and operating performance of Chinese seasoned equity offerings," Applied Financial Economics, Taylor & Francis Journals, vol. 20(8), pages 649-657.
    • Handle: RePEc:taf:apfiec:v:20:y:2010:i:8:p:649-657
    DOI: 10.1080/09603100903459881
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    Cited by:

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    2. Sazali Abidin & Krishna Reddy & Liehui Chen, 2012. "Determinants of ownership structure and performance of seasoned equity offerings," International Journal of Managerial Finance, Emerald Group Publishing Limited, vol. 8(4), pages 304-331, September.

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