Seasoned Equity offering

Seasoned Equity Offering (hereafter SEO) or Secondary Equity Offering is an issue of the additional equity of listed firms. This is one of popular ways for the listed firm to raise the funds. Since there is no perfect market, external funding especially equity funding has the higher cost. This is because the information asymmetry that investors don’t know what managers are doing with the money and why the firms raise more fund, the stock price, therefore decrease. So it is obvious that the firms need to have the clear and explicit objective of funding such as invest in new positive NPV project, extend more business line before they raise the fund in order to reduce cost of funding.

Many researches about the performance of SEO firms found that there are deterioration in stock return after the firms offer the equity [see Jegadesh (2000), Ritter (1995)]. Some might give the explanation about the decrease in return of SEO firm come from the dilution effect. The larger number of outstanding equity leads to the less stockholders right and benefits. Moreover, many studies found the persistence of deterioration in stock return are quite long term. It is quite contradicted. SEO should be benefit to the firms in order to raise the fund and increase the investment, then leads to better firm performance. So this contradiction becomes the objectives of this study. The first objective of this paper is to investigate the operating performance of SEO firms as pre- and post equity offering in order to figure out whether there is any the deterioration in operating performance. This paper intend to measure the performance in term of operating performance which is shown as the real number in the balance sheet or income statement rather than stock performance.

Moreover, there are three main purposes of firm to conduct SEO regarding to Barclay (2009). The first one is to raise investment fund. The second one is to decrease firms’ leverage and the third one is to take