Do financial firms exhibit any special acumen? : evidence from accelerated seasonsed equity offerings

Abstract

Accelerated bookbuilding method, a streamlined equity offering process, shortens the period for underwriters to exert marketing effort and perform due diligence in seasoned equity offerings. This leads to reduced efforts in minimizing information asymmetry between the issuer, underwriter and investors. My results show that financial issuers have a higher tendency to accelerate the SEO process after controlling for other firm-level offering characteristics. I hypothesize that financial issuers by their nature enjoy less information asymmetry and greater financial expertise, thus they derive only smaller benefit from costly bookbuilding process. Using a sample of financial and non-financial SEOs, I test the equity offering agency model by examining issuers’ decision to accelerate and the accompanying floatation costs. My tests show that only financial issuers can save costs in accelerated SEOs, while non-financial issuers incur higher flotation costs when shortening the bookbuilding process. Further evidence on accelerated SEO post-issue long-run performance shows that financial issuers are better at timing their equity issuance compared with their size and book-to-market matched non-financial counterparts. My results are consistent with Baron’s (1982) agency model in equity offering and Myers and Majluf’s (1984) information asymmetry model of the decision to issue security.