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Discounting and Clustering in Seasoned Equity Offering Prices

Published online by Cambridge University Press:  06 April 2009

Simona Mola  and
Tim Loughran
Simona Mola
Affiliation:
[email protected], Bocconi University and Smeal College of Business Administration, Pennsylvania State University, University Park, PA 16802;
Tim Loughran
Affiliation:
[email protected], Men-doza College of Business, University of Notre Dame, Notre Dame, IN 46556-5646.
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Abstract

An analysis of 4,814 SEOs during 1986–1999 indicates that the average offering ofnew shares is priced at a discount of 3% from the closing price on the day before the issue. Discounts have risen steadily over time, sharply increasing the indirect costs of issuing seasoned equity. There is evidence of increased clustering of offer prices at integers, and of greater importance in the analyst coverage provided by underwriters. Adjusting for other factors, we find that issues with integer offer prices, and underwriters with highly regarded analysts, are increasingly associated with larger discounts. The rise in discounts is consistent with an increased ability of investment bankers to extract rents from issuing firms.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 39 , Issue 1 , March 2004 , pp. 1 - 23
Copyright
Copyright © School of Business Administration, University of Washington 2004

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