Market reaction to seasoned offerings in China

Liu, Jia; Akbar, Saeed; Shah, Syed Zulfiqar Ali; Zhang, Dayong; Pang, Dong

Abstract

© 2016 John Wiley & Sons Ltd This study examines stock market reaction to the announcement of various forms of seasoned issues in China. Our empirical evidence demonstrates that market reactions differ in ways that suggest a difference between management's internal assessment and the market's assessment of the stock price. The market responds unfavourably to the announcement, notably in the case of rights issues and also with regard to open offers. Private placements experience an unfavourable pre-announcement reaction, which contrasts with the favourable reaction after the event. Convertible bond issues generate positive excess returns consistent with the market's confidence that they can help to align management and shareholders’ interests. Further investigation shows that market reaction is related to factors specific to the issuer and issue by reference to the period immediately surrounding the issue. Specifically, ownership concentration, agency matters connected with equity offerings, investor protection connected with fund allocation and security pricing, and the influence of powerful moneyed interests together provide an instructive insight into market reaction. Institutional inefficiency pertaining to underwriting, auditing, analysts’ forecasts and credit ratings are found to have a weak association with market price, consistent with due public scepticism concerning management and their gatekeepers.

Citation

Liu, J., Akbar, S., Shah, S. Z. A., Zhang, D., & Pang, D. (2016). Market reaction to seasoned offerings in China. Journal of Business Finance and Accounting, 43(5-6), 597-653. https://doi.org/10.1111/jbfa.12198

• Journal Article Type: Article
• Acceptance Date: Feb 3, 2016
• Online Publication Date: Jul 27, 2016
• Publication Date: 2016-05
• Deposit Date: Sep 18, 2018
• Publicly Available Date: Sep 20, 2018
• Journal: Journal of Business Finance and Accounting
• Print ISSN: 0306-686X
• Publisher: Wiley
• Peer Reviewed: Peer Reviewed
• Volume: 43
• Issue: 5-6
• Pages: 597-653
• DOI: https://doi.org/10.1111/jbfa.12198
• Keywords: Seasoned issues; Seasoned equity offerings; Convertible bond issues; Market reaction; Information; Information asymmetry; Agency costs; Market infrastructure; China
• Public URL: https://hull-repository.worktribe.com/output/519292
• Publisher URL: https://onlinelibrary.wiley.com/doi/abs/10.1111/jbfa.12198
• Contract Date: Sep 20, 2018