Seasoned equity offerings evidence in Vietnamese stock market

owth: annual growth rate of sales. - Investment: fixed investment, where Investment is measured as the changes in fixed assets scaled by total assets of the firm. - Tradeoff: difference between the firm i’s leverage and the average leverage of other firms in the same industry. - Overvalue: difference between the firm i’s market to book ratio and the average market to book ratio of all other firms in the same industry in the same year. - EAE: extra administrative expenses= difference between the firm i’s administrative expenses and the average administrative expenses of all other firms in the same industry - Nontradable : ratio of Market timing encourages Chinese companies to conduct SEOs. Investment and growth theory experience weak empirical support while there are no evidence to support tradeoff and agency theories 2 non-tradable shareholdings to total shares outstanding - Industry: dummy variables - Gap: the number of years between the current SEOs and the last SEOs - Next: a dummy variable that takes the value of one if the firm issue SEOs in the next 3 years after the current SEOs. - Size: logarithm of total assets. - Profit: earnings before interests and tax scaled by total assets - Debt: ratio of total debt to total assets of the firm - Volatility: difference between the standard deviation of the firm i’s daily stock returns and the average standard deviation of daily stock returns of other firms in the same industry. 2 Chikolwa and Kim (2009) S&P/ASX 300 Index 2000- 2008 Probit model Examining SEOs motivation ofAustralian Real Estate Trusts and the market reaction. - Company size - Profitability - Growth opportunities - Tangibility: SEOit: dummy variable that equals 1 if an A-REIT i issued a SEO in year t, otherwise 0 - SIZ: natural logarithm of total assets - Profitability: return on assets (ROA) - TOQ: ratio of the market value of equity plus the book value of debt to - the book value of assets - PPT: ratio of book value - Companies with higher leverage are less likely to issue SEOs. - Significant negative abnormal return is related to SEOs announcement 3 - Operating risk: - Leverage: - Others of property to total assets - SDE: standard deviation of EBIT scaled by total assets for each firm over the entire period covered - LTA: : the ratio of total liability to total asset - DUMp,i: property sector dummy variables of 1 or 0 otherwise - DUMs,i: stapled structure management dummy variable of 1 or 0 otherwise - DUMI,i: international operations dummy variable of 1 or 0 otherwise with no evidence of information leakage. - Market reaction differently to announcements of SEOs in different market period. 3 DeAngelo et. al. (2010) CRSP 1975- 2001 Logit regressi on Assessing the positive relation between likelihood that company conduct SEO and its standardized M/B ratio as well as market return, and negative relation to its future AR and number of listed years. Market timing. SEOit: equals one if the firm conducts an SEO in the year in question and zero otherwise. - The standardized M/B ratio - The market-adjusted stock return over the 36 months ending immediately before the year in question. - The market-adjusted return over the 36-month Companies with higher M/B and three preceding year AR are more likely to issue SEOs. 4 Jung et. al (1996) US 1977- 1984 Logisti c regressi Investigating the explanatory power of - Taxation - Costs of financial SEOit: dummy variable, takes the value one for - Tax payment/TA: tax payments/book value of total assets The authors support the agency model while experience the 4 on pecking order model, agency model, timing model to determination of financing resources as well as market reaction. distress. - Probability - Risk - Investment opportunity - Market timing - Others (Total assets; Gross proceeds/MVCS; Log of (Amount/MVCS) equity issues and zero otherwise. - Long-term debt/TA: long term debts/ book value of total assets - Cash flow: (operating income before depreciation – total taxes adjusted for changes in deferred taxes – gross interest expense – dividend paid)/total assets - Stock return volatility 6-month leading indicator - Market-to-book - Past 11month cumulative excess return - Cash and liquid/total assets - Post-issue 5-year excess returns - Total assets - Gross proceeds/Market value of equity - Log of (Amount/MVCS) failure for pecking order and timing model. 5 Abraham et. al. (2011) US 2002 - 2005 Logisti c model Proposing a method to estimate the features of SEOs companies. Company liquidity P(SEO offering): taking values of 1 if the firm had a probability of SEO offerings or ) otherwise - RE: retained earnings measured by common equity - LTD: long-term debt - CE: capital expenditure - D: dividends - DR: debt reduction - CD: current debt - C: cash and short-term investment - NI: net income Companies with strong fundamental have more tendency to conduct SEOs. 5 6 Jeanneret (2003) France 1984 - 2000 Probit model Testing whether the relation between the informational content of equity offering announcements and their effect on company value depends on the offering purpose. - Information asymmetry - Risk - Tradeoff theory - Other Control Variables I: dummy variable, takes the value one for equity issues and zero otherwise. - ROA: Return on Assets - Runup: Issuer’s stock price runup computed over the 250 trading days - Mrunup: stock market runup computed over the 250 trading days prior - Mvol: Market volatility computed over 75 trading days - Δcredit: Credit spread (difference in yield between 10 year French corporate bonds and 10- year French government bonds) - Δterm: Term spread (difference in interest rate between 10 year French government bonds and 1- month Euro FRF rate) - Specific: volatility of the market model residuals estimated over the pre- announcement period [- 255;-6] - Δtarget: Deviation from the industry median leverage ratio (debt over assets in book values) - FCF: Free cash flow (over assets in book value) - MB: the last pre-SEO fiscal year book value of equity divided by the corresponding market - The SEOs announcements convey unpredicted company value information. - Information released in the prospectus increases the explanatory power of the valuation effect at the announcement. 6 value of equity - Size: Log of the market capitalization 7 Elliott et. al. (2008) US 1980 - 1999 Logit model Testing the market timing theory of capital structure using an earnings- based valuation model - Growth options (CapEX; R&D) - Size - Tangibility - Profitability - Depreciation - Target leverage(Target- Leverage; IdnLeverage) - Credit quality - Tax benefits - Interest rates - Others IssueTypej: takes the value of 1 for debt and the a value of 0 for equity - CapEx: apital expenditures divided by total assets - R&D: ratio of research and development expense to total assets - Ln Sales - Tangibility: ratio of fixed assets to total assets - Profitability: EBITDA/Assets - Depreciation: ratio of depreciation expense to total assets - Target-Leverage = (Total Assets – Book Equity)/ Total Assets - IdnLeverage: median of industry leverage. - Tax Rate: marginal tax rate of the firm based on the marginal tax rates - Debt capacity – leverage: debt/total assets - 3 year mean ROA - 2-year stock return: - Market-to-book ratio: market value of equity in the month prior to the issue. - Firms whose equity is overvalued are significantly more likely to issue equity - Equity mispricing plays important role on financing decision 8 Eric Duca (2011) US 1980- 2007 Probit model Testing the effect of timing the market on returns after - Matket timing (6 Mth. post-previous rets. (12 Mth. post-previous Probability of issuing equity for firms takes value 1 if a - 6 Mth. post-previous rets. (12 Mth. post-previous rets.): buy and hold returns over the 6 month - Market timing is commonly cited as a determinant of equity issues, 7 seasoned equity of US companies from 1980-2007 rets.); 6 Mth. post- IPO rets. (12 Mth. post-IPO rets.)) - Information asymmetry - Risk - Information asymmetry - Tax - Growth opportunity (Tobin's Q; R&D expense). - Tradeoff theory firm makes an issue in a firm - year and 0 otherwise (12 month) period after a previous SEO - 6 Mth. post-IPO rets. (12 Mth. post-IPO rets.): buy and hold returns over the 6 month (12 month) period after a previous IPO - Abn. Stock return: The raw cumulative stock return over trading days - 62 to - 2 prior to the announcement date less the CRSP equally weighted market index return over the same period - Stock Volatility: annualized standard deviation of daily stock returns over trading days - 62 to - 2 before the announcement date - Slack: Cash and short - term investment divided by total assets - Fixed assets - Ln(Sales): natural logarithm of total sales - Taxes: tax/total assets - Tobin's Q - R&D expense - - Leverage-Target: deviation of the market leverage from the target although the cost of timing equity offerings on future issues are not well known - Following an equity issue, firms are more likely to switch to debt if they had timed their previous equity offering. 8 - Market timing - Others leverage - Market runup: return on the S&P 500 index over the quarter preceding the issue date - KZ index: Kaplan and Zingales Index - Age: difference, between the issue date and the date that the firm first appears in the CRSP database. - Interest rates: - Default premium: difference between yields on Baa rated corporate Bonds and Aaa bonds - Years previous issue: number of years that have elapsed since the previous issue - Previous underpricing: logarit of (closed day price of day before announcement/announce ment day price) - IPO underpricing: - Confidence Index: average level of the University of Michigan Consumer Sentiment Index over the three months prior to issuance 9 A. Altı, J. Sulaeman (2012) US 1985 - 2005 Probit model To investigate the consideration of - Market timing opportunities and growth prospects Pr(SEOannounc ement): probability that - Lagged six month stock return: stock returns 6 months before - High stock returns accompanied by strong investor 9 company when timing the SEOs. - Information asymmetry - Investment and growth (Investment and R&D). - Others company will announce its SEO announcement day. - M/B: market value/book value ratio - Firm size: Logarithm of firm book value - Profitability: EBITDA/book value of total assets - Investment: capital expenditure/book value of total assets - R&D: R&D expenses/ book value of total assets - Firm age: Logarithm of the number of quarters since the first appearance of the firm CRSP - Volatility: Annualized standard deviation of daily stock returns measured over one quarter - IPO dummy: Indicator variable: one if the firm has been public for less than two year - Turnover: Quarterly share trading volume divided by shares outstanding - Institutional ownership: Fraction of shares outstanding owned by institutional investors - Leverage: Book debt divided by book assets. demand trigger SEOs. - Institutional purchases instead of stock price increase strongly affect company’s SEOs motivation.1 1 Huang (2012) China Logisti Discuss and - Tradeoff theory : = 1 if - Lev_indus: the firm’s Companies with 10 (Source: author’s recapitulation) 0 (CCER) 1994 - 2006 c model examine the motivation to conduct SEO of listed Chinese companies. - Information asymmetry theory. - Agency cost - Others (TIME; Size; YrEI; Profit ; Lev RevG) company conducts SEO in year t; 0: otherwise leverage minus - industry average; - PSR: six-month share returns prior to the SEO - OwnCon,: average ownership concentration. - ManHold,: average managerial holding - TIME: = 1 if the year is before 2002, and 0 - if the year is during 2002 and 2006 - Size: the natural log of the firm’s total assets. - YrEI: years since the firm’s last equity - issue which includes the IPO and SEOs - Profit: EBIT divided by total assets. - RevG: the percentage change in operating revenue higher leverage in comparison to their optimal leverage, higher stock returns, weaker ownership concentration are more likely to conduct SEOs. 11 APPENDIX 2 MARKET REACTION TO COMPANY’S SEOs 1. Summary of Literature review on SEOs empirical studies in developed markets: No. Author Data Methodology Research objectives Results Interpretation 1 Masulis and Korwa (1986) NYSE/AMEX 1963-1980. 1406 SEO cases. Event study To examine market reaction toward company SEO announcement Portfolio returns on announcement day: Issuance not accompanied by stock sold to manager: AAR = - 1.21% (***) Issuance accompanied by stock sold to manager: AAR = - 2.69% (***) A reduction in ownership of manager is negative information about company current value to the market. 2 Dhatt (1996) Korean Stock market 1977-1991 791 right distributions Buy and Hold Examine stock prices respond to right distributions in Korean stock market. = 2.41% (**) The high volume of the SEOs will reduce the level of liability in a company then reduce the cost of financial distress; the better the company is, the higher the SEOs issuance price it offers. 3 Jung et al. (1996) USA 1977-1984 192 SEO cases Market model Investigating the pecking order model, the agency model, and the timing model power in explaining ;= - 2.70% (*) Company with high agency cost will conduct SEO if they have poor investment opportunities. 12 company financing decisions and stock price reaction to their decisions. 4 Tsangarakis (1996) Athens Stock Exchange 1981-1990. 111 SEOs cases. Event study Examine stock price reaction toward company SEO in Athens Stock Market. ;= 0.02451(***) SEOs increase the capital in the company, increase the ownership of big investors then reduce the agency cost; at announcement day the level of information asymmetry is at low level. 5 Slovin et al. (2000) London Stock Market 1986 – 1994. 220 right distributions and 76 private placements. Market model Measure influences of SEO announcement and issuance method on stock returns at UK market. Abnormal returns [- 1;0] with 0 is announcement day = -3.09%*** Market expects that managers will conduct SEOs when stock price of company is overvalued or company cash flow is below its expectation 6 Tan et al. (2002) SGX 1987- 1996 . 56 companies (65 right distributions and 67 private placement) Event study Examine stock price response to SEO announcement at Singapore market. ;= 1.649% ** Company conducted SEOS after a period of stock price increasing; there is a trend of information leaked before the announcement day that enable speculators to achieve high returns. 7 Rezaul Kabir et. al. (2002) Amsterdam Exchanges 1/1984 – 12/1995. 76 industrial Event study Examine the impact of stock valuation to subsequent company performance. ;= - 2.79%**. Equity rights issue is considered negative news to the market. 13 companies in Netherlands. 8 Lee (2007) US 1980-1988. 864 SEO cases. Market model Evaluate stock price reaction to company SEO announcement by internal trading. ,: - 2.13%*** Returns on announcement day reduce in a larger scale when information about company net selling than net buying available 9 Walker et al. (2008) Thomson Financial’s Corporate New Issues data stream - US 1997-2000. 438 companies. Market model Examine the ex-ante purpose of capital using of company and how market reacts to that information. ; = - 2.76% The more specific plan on the use of funding will lead to better market reaction. 10 Balachandran (2008) London stock exchange 1996- 2005. 1001 SEO cases Event study Investigate how the market react to SEOs announcement, and determinations of issuing type ;= - 1.59%*** Companies signal their quality by offering lower issued price discounts; lower risk and the use of share pre-renouncement 11 R. Aggarwal et. al.(2008) US 1983 – 2003. 8127 SEO cases Regression model Point out the reason why SEO announcement leads to significantly negatively market reaction. = - 1.7% Added shares increase market selling pressure. 12 Owen and Suchard (2008) Australian Stock market 1993 – 2001. 207 right distributions. OLS regression Investigate abnormal returns resulting from the announcement of a rights issue of equity in Australia = - 0.77%** ; = - 1.83%*** SEO announcement conveys negative information about company profit or investment opportunities. Companies which expect their stock price decrease in issuance period will self- 14 defend by offering a relative low price to encourage investors to join the issuance. 13 Chikolwa (2009) S&P/ASX 300 Index 2000-2008. 277 SEO cases Event study Examines the SEOs decision by Australian Real Estate Trusts and how the market react to the offerings ASAR0= - 0.564%* SEOs increase price pressure, lead to wealth transfer from shareholders to creditors, and information about capital raising shows negative signal about company current cash flow. 14 Eric Duca (2011) US 1980-2007. 2420 SEO cases OLS regression Examine effect of choosing market timing on stock returns after SEO. SEO following another SEO: CAR; = - 0.020 SEO following IPO ; = - 0.026 Company will choose market timing to conduct SEOs; investors, on another hand, tend to adjust stock price to respond to this information, company will compensate for investors by offering a relative low price in the next SEOs. 15 Fu et al. (2012) US 1985- 2010. 6645 SEO cases Regression model To verify results of prior studies that the years following share repurchases will generate high stock AR while the year following SEOs will lead to low stock AR. ,= - 2.77% *** Because the efficiency of the market is improved gradually, fewer firms will exploit the market timing to repurchase stocks and offer SEOs. 15 2. Summary of Literature review on SEOs empirical studies in emerging markets: No. Authors Data Methodology Research objectives Results Interpretation 1 Salamudin et. al.(1999) Malaysia stock market 1/1980- 12/1995. 255 right distributions Event study Examine stock price reaction toward company’s right distributions Favorable market timing: = 0.003 Unfavorable market timing: = -0.0083 Investors expect that money derived from the issuance will be used to finance for profitable projects at potentially developing countries with high economic growth. 2 Cahit Adaoglu (2006) Istanbul Stock Exchange 1994- 1999. 294 right distributions Market model Examine how the Istanbul market reacts to plain and simultaneous distribution of bonus issues rights. Unsweetened: AR0 = −0.02107** Sweetened: AR0 = 0.00489 The AR for unsweetened rights is significant negative since they convey unfavorable information about company activities. On the other hand, the sweetened rights offerings lead to positive AR. 3 Marisetty et al. (2008) Indian capital market 1997– 2005 203 right distributions 1 factor Market model Examines securities price reaction to announcements of rights issues by listed Indian firms during the period 1997–2005. Rights issues with warrants, preference shares or convertible notes: , = 0.0003 Right issues only: , = 0.0037 SEO under right distribution method will increase cash resources and financial liquidity in company. 4 C. Chen, X. Chinese stock Event study Examines stock price CAR, Right distributions 16 Chen (2007) market 1999 – 2001. 205 SEOs reaction to right distributions. 1999 = - 0.010** 2000 = - 0.004 2001 = - 0.017*** increase price pressure on stocks. 5 Humera Shahid (2010) Shanghai and Shenzhen stock Exchange 1998- 2008. 717 SEOs Market returns adjusted model and Average returns adjusted model Examine stock price reaction to SEO announcements at Chinese stock market Right distribution : = - 0.0018 Managers conduct SEOs when company’s stock price is overvalued; investors, then, tend to reevaluate company’s current stock prices on the market. 6 Leskullawat (2011) Thailand Stock market 1999- 2006. 1910 SEOs Event study OLS regression Research on SEOs of Thailand firms from 1999 to 2006 = -0.01069*** SEOs increase price pressure on company’s stocks. (Source: author’s recapitulation) 17 APPENDIX 3 DETERMINANTS OF MARKET REACTION TO COMPANY’S SEOS 1. Summary of Literature review on SEOs empirical studies in developed markets: No. Author Financial theory Proxies 1 Masulis (1986) - Signaling model - Optimal capital structure model - Adverse selection model - Agency theory - Other controlling variables (RUNUP; MRUNUP; D2; D3; D4) - ΔSHR: the percentage change in the shares of common stock outstanding - ΔLEV: the changes in the firm's financial leverage - VAR: the stock's total risk measured by the variance of the stock's return over the 60 trading days preceding the announcement period - D1: whether the secondary offering component of a combination offering involves management share sales, measured by an indicator variable - RUNUP: the common stock's price runup over the pre-announcement three- month period as measured by its cumulative return - MRUNUP: the price runup in the CRSP equally weighted stock market index over the three-month pre-announcement period as measured by its cumulative return - D2: whether or not the firm had made one or more common stock offerings in the previous year - D3: whether or not the firm had sought and obtained additional common stock authorization in the year preceding the offering announcement, - D4: whether or not the firm's leverage ratio at the yearend preceding the offering is greater than the average leverage ratio over the prior four fiscal year ends 2 Jung et al. (1996) - Taxation - Cost of financial distress - Growth opportunities - Cost of financial distress - Asymmetric information - Others [Gross proceeds/MVCS; Log - Tax payment/TA: tax/book value of total assets - Long-term debt/TA: : long-term debt/ book value of total assets - Market-to-book: market value / book value of total assets - Cash flow: (operating income before depreciation – tax – gross interest expense – dividend paid on common and preferred stock)/ book value of total assets - Stock return volatility: CRSP daily data for the period [-240;-40] - 6-month leading indicator - Past 11-month cumulative excess return - Cash and liquid/ total assets - Total assets: total assets 18 of (Amount/MVCS)] - Post-issue 5-year excess returns: excess return of issuing firms over firms with similar size before the issue - Gross proceeds/MVCS: proceeds from the issue/market value of equity) - Log of (Amount/MVCS): log of ( proceeds from the issue/market value of equity) 3 Lee (2007) - Information asymmetry - Price pressure - Agency cost - Information asymmetry - Control variables [RUNUP; Df; D1; D2]: - NTRD: insider trading activity within 10 day before announcement day = net insider trading/outstanding shares. - FSIZE: logarithm of company shares before announcement day - ISIZE: issuance size = proceeds from the issuance/company share value before announcement day. - OWNR: shares owned by insider investors/outstanding shares - LEVC: change in company leverage - RUNUP: cumulative stock return in the period of 60 days before announcement day - Df: dummy variable : times to conduct SEOs in a year - D1, D2: industry dummy variables 4 Walker (2008) - Information asymmetry - Growth opportunity - Operating cash flow - Level of leverage - Level of liquidity - Level of investment - Pecking order theory - Market timing - (Stated INV)/TA-1: the amounts of capital to be used for investment/Total assets - (Stated GEN)/TA-1: the amounts of capital to be used for general corporate purposes /Total assets - (Stated DEBT)/TA-1: the amounts of capital to be used for debt repayment /Total assets - (INV+1–INV-1)/TA-1*INVEST_FIRM:(change in capital expenditures + R&D)/Total assets for Invest firms - (INV+1–INV-1)/TA-1*GENERAL_FIRM:(change in capital expenditures + R&D)/Total assets for General firms - (INV+1–INV-1)/TA-1*DEBT_FIRM:(change in capital expenditures+R&D)/Total assets for debt firms INVEST FIRM and GENERAL FIRM are indicator variables equal to one if the firm is categorized as an INVEST firm or as a GENERAL firm, respectively; otherwise equal to 0. - (LTD+1 – LTD-1)/TA-1: change in long-term debt/Total assets - (WC+1 – WC-1)/TA-1: change in working capital/Total assets 19 - Q-1: (market value of equity − book value of equity+book value of assets)/book value of assets - OBID-1/TA-1: operating income before depreciation/total assets - PPE-1/TA-1: plant, property and equipment/total assets - LN(TA-1): ln of total assets - RUNUP: market- adjusted abnormal returns from day −61 to −2, where day 0 is the announcement date - SECONDARY: indicator that equals one if the SEO includes some secondary shares, otherwise equal to 0 5 R. Aggarwal, X. Zhao (2008) Growth opportunity Liquidity Information asymmetry Growth opportunity Others (Size, ∆Leverage ; ∆Volatility) - MB: ratio of market value of total assets to book value of total assets - Offer Size: ratio of shares issued to the number of shares outstanding before the issuance date - Turnover: total trading volume during the period [−1, 1] as a proportion of the total number of shares outstanding in day −1 - Analyst Coverage: average number of analysts making monthly forecast of 1- year-ahead earnings per share within a twelve-month period - Dispersion: standard deviation of the earnings forecast scaled by the absolute value of the mean earnings forecast. - Price Run-up: annualized return during the 125 days before SEO announcement - Size: Log of market capitalization - ∆Leverage: difference between total market leverage after issuance and before issuance - ∆Volatility: annualized returns volatilities estimated using 125 daily returns data before SEO announcement. 6 M.S. Officer (2011) - Growth opportunity - Cash flow signaling hypothesis - Agency cost - Firm’s characteristics [Log(Size); Dividend yield; Δrisk; Prior repurchases; ROA; RE/TE] - Q: (total assets + fiscal-year-end market value of equity - book value of equity - balance sheet deferred taxes)/total assets - Low Q: indicator variable equal to one if the initiating firm's Q is less than or equal to the industry/year median - Cash flow from operations (industry adjusted): (earnings before extraordinary items + depreciation and amortization - working capital accruals)/ total assets - Low Q * Cash flow from operations (industry adjusted) - Log(Size): log of market value of equity - Dividend yield: mount of the initial dividend divided by the stock price three 20 trading days prior to the dividend initiation announcement date - Δrisk: change in the risk premium after the announcement of a dividend initiation. - Prior repurchases: indicator variable equal to one if the initiating firm repurchases stock in the five years prior to the dividend initiation, and zero otherwise. - ROA - RE/TE: retained earnings/book value of equity 7 Eric Duca (2011) - Market timing - Information asymmetry - Growth opportunity - Information asymmetry - Financial constrain - Others (Age; Years previous issue; Previous debt issue; Previous underpricing; IPO underpricing; Inverse Mills' ratio) - 6 Mth. post-previous rets. (12 Mth. post-previous rets.): buy-and-hold returs in the period of 6 months (12 months) after previous SEO. - 6 Mth. post-IPO rets. (12 Mth. post-IPO rets.): buy-and-hold returs in the period of 6 months (12 months) after previous IPO. - Abn. Stock return: monthly stock return – market return - Residual volatility: annualized standard deviation of residuals from a regression of daily excess stock returns on excess returns of the value-weighted CRSP market portfolio, estimated over trading days -62 to -2 before the announcement date. Systematic volatility: annualized standard deviation of the predicted value from a regression of daily excess stock returns on excess returns of the value - weighted CRSP market portfolio, estimated over trading days -62 to -2 before the announcement date. - Slack: Cash and short term investments/total assets - Fixed assets - Ln(Sales): logarithm of sale - Taxes: tax/total assets - Tobin's Q - R&D expense - Leverage-Target: the deviation of the market leverage from the target leverage - KZ index: Kaplan and Zingales index - Age: difference, in years, between the issue date and the date that the firm first appears in the CRSP database - Years previous issue: the number of years that have elapsed since the previous issue 21 - Previous debt issue: dummy variable for issuers that make a debt issue in between the current SEO and a previous equity offering. - Previous underpricing: logarithm (closing price of day before announcement day/price of announcement day) - IPO underpricing: - Inverse Mills' ratio 8 Fu et al. (2012) - Market timing - Market timing - Others: [Cash/Assets; Debt/Assets; EBITDA/Assets; Return volatility; 3-year CAPX/Assets; Proceeds/ME; Industry dummy; Post 2002 dummy; Log (Assets)] - Prior 12 - month returns: the compound return in the 12 months before the announcement - B/M: book to market equity ratio - Cash/Assets: cash and marketable securities/total assets - Debt/Assets: long-term debt/total assets - EBITDA/Assets: BITDA/total assets - Return volatility: (standard deviation of daily returns in the previous 12 months - 3-year CAPX/Assets: sum of capital expenditures in the following three years divide d by total assets - Proceeds/ME:(transaction value scaled by market capitalization before announcement - Industry dummy - Log (Assets): Log (Total assets) 22 9 Balachandran (2008) - Quality signaling hypothesis - Growth opportunity - Information asymmetry - Ownership Concentration company quality - Leverage - Issuance size - DISC: the subscription price discount; - BM: book-to-market ratio measured as book value of assets to market value of assets; - LMV: logarithm of the market value of the i issuing firm one month prior to the announcement - IDYRISK: idiosyncratic risk measured as the standard error of the market model regression of daily stock returns over the period from day -260 to day -61 for each issuing company - BH5: blockholders holding shares of 5% of more; - DUW: dummy variable equal to 1 if the issue is fully underwritten, and zero otherwise - RUNUP: raw return for the one-year period prior to the announcement date (return from -260 to day -2); - TD/TA: total debt to total assets; - LOP: natural logarithm of the offer proceeds; - LOPtoMV: natural logarithm of the ratio of offer proceeds to market value one month before the announcement date 10 Owen and Suchard (2008) - Information asymmetry. - Growth opportunity - Agency cost - Industry dummy - The use of proceeds - - ISSUE: gross proceeds of the issue as a percentage of the market value of the firm - FIRM: log of total assets - VOL: standard deviation of daily stock returns in the year prior to the announcement - CONCENTRATION: the percentage shareholding of the top 20 shareholders prior to the announcement - RENOUNCE: Dummy variable =1 if an issue is renounceable - PREDISC: Predicted discount price - GO: Book value of equity / market value equity - UWCOST: underwriting fee as a percentage of the offer proceeds - RANK: takes the value of one if the underwriter of the issue appears in the top 10 underwriters as reported by Thomson Financials’ rankings in the calendar year prior to the rights issue announcement - INSTIT: percentage of shares owned by institutions prior to the announcement date. 23 - RUNUP: cumulative excess return over the period (-60,-1). - LEVERAGE: post-announcement debt to equity ratio over the pre- announcement debt to equity ratio. - MGT: percentage ownership of managers at the yearend before the announcement - RESOURCE: equal to 1 if the issuer is a resource firm and zero otherwise - RETIREDEBT: equals one if the issue is used to retire debt - UW: equals one if the issue is used for working capital purposes 11 Chikolwa (2009) - Price pressure hypothesis - Wealth effects hypothesis - Profitability - investment opportunity hypothesis - Risk - Information asymmetry hypothesis - Industry dummy - ERD: natural log of AU$ millions of seasoned equity raised - LTA: the ratio of total liability to total assets - ROA: return on assets - TOQ: ratio of the market value of equity plus the book value of debt to the book value of assets - PPT: ratio of book value of property to total assets - SDE: standard deviation of EBIT scaled by total assets for each firm over the entire period covered - SIZ: natural logarithm of total assets - DUMp,i: dummy variable for property sector - DUMs,i: dummy variable for stapled management structure. - DUMI,i: dummy variable for international operations 12 Tan et al. (2002) - Price pressure effects - Investment opportunity effect - Wealth transfer effects - Pricing effects - Information asymmetry effects - Ownership structure effects - LIQ: ratio of the firm’s average daily trading volume from t=-200 to t=0, to the number of shares outstanding before the seasoned equity issue - VAR: variance of daily stock returns from day t=-200 to t=0 - LnProvMV: natural logarithm of the ratio of the proceeds to the market value of the firm on day t=-30 - INV: the announcement of investment opportunities and/or capital expenditure. INV is set equal to 1 announcement of investment opportunities and/or capital expenditure, equal to 0 when the issuing firms announce that the issuance proceeds will be used for repayment of debt or financing working capital needs - ΔDE: change in the issuing firm’s debt-to-equity ratio - PRC: ratio of the offer price to the closing price of the share on day t=30 24 (Source: author’s recapitulation) 2. Summary of Literature review on SEOs empirical studies in emerging markets: No. Authors Financial theory Proxies 1 Tsangarakis (1996) - Investment opportunity - Price pressure - Signaling theory - Information asymmetry - - Liquidity - Market timing - Ownership dummy - INVEST: increased capital. - SIZE: stock volume after issuance. - VAR: variance of stock returns. - OFFER: issuance price. - DTOA: dummy variable, equal to 1 if ratio of debt/total assets of company is below median of sample’s ratio of debt/total assets. - CONTR: measure the dispersion of company’s ownership. - LIQUID: liquidity of stocks. - MARKET: cumulative market returns in the period [-50;-1] before announcement day. - S-P: dummy variable, equal to 1 if company is stated-owned companies. - B-R: dummy variable, equal to 1 if investors do not have to subscript to - BM: book-to-market-equity ratio on day t=-30 - ΔOL: difference between the level of ownership concentration before and after the private placement 13 Rezaul Kabir (2002) - Information asymmetry hypothesis - Free cash flows hypothesis - Window of opportunity hypothesis - Issue-size: relative to the market value of equity on the day before the announcement. - Isues-price: relative to the closing stock price of one day and three days before the issue announcement as well as the average of closing stock prices for ten days before the announcement - M/B: sum of market value of equity and book value of debt divided by book value of total assets - GDP: dummy variable set to 1 if the issue occurs in years of relatively high growth rate of GDP 25 own new issued shares. 2 Dhatt (1996) - Signaling theory - Information asymmetry - Price pressure Company prospect - LMVE: log of the market value of equity at the end of the fiscal year before the announcement - PCEDR: percentage change in the ratio of market value of equity to book value of debt during the rights issue year - PERSIZ: number of shares offered in the rights issue divided by number of shares outstanding before the offer - PERPRI: subscription price divided by the stock's market price one month before the announcement 3 Salamudin et. al.(1999) - Information asymmetry - Price pressure hypothesis - Growth opportunities - Economic condition Market timing - SDAR: standard deviation of abnormal returns for days t=-60 to t=-9 - ROFFER: ratio of offer price to average 20 days pre-announcement price - LVOL: gross amount of funds raised at offering, in logarithmic specification. - RINV: relative investment given by ratio of funds allocated for investment and working capital purposes to gross amount of funds raised. - TOBINQ: market value of equity plus book value of debt divided by book value of total assets - ROA: gross profits divided by total assets - ECON: a dichotomous variable, which takes on the value 1 for issues made during periods of declining risk premium and 0 otherwise - MRUNUP: 60 days pre-announcement market returns 5 Leskullawat (2011) - Information asymmetry - Growth opportunity - Leverage - Company performance - Ownership Others (P/E; TURN; - SIZE: The ratio of market capitalization - M/B: The change in market to book ratio is defined as the difference in the market to book ratio in the year of issuing and the average 3 years of this ratio before the year of offering - LEVERAGE: difference between leverage ratio in the year of issuing and average leverage ratio 3 years before the issue year - The difference between ROA, ROE or EBITDA in the offering year and average ROA, ROE or EBITDA for 3 years before the year of offering 26 EVENT) - OWN: difference between the top five largest major shareholders in the year of offering and the top five largest major shareholders 3 years before the issuing year - P/E: P/E ratio in the issued year minus average P/E ratio 3 years before the issuing year - TURN: ratio that measures trading volume in comparison to the number of shares outstanding - EVENT: refer to events other than SEOs during the period of 115 days before and after the SEO announcement (day 0) 6 Hong Bo et al. (2011) - Financing for investment and growth - The tradeoff theory Market timing - Agency theory - Control variables Industry dummy - Growth: annual growth rate of sale. - Investment: annual growth rate of fixed investment - Tradeoff: difference between the firm i’s leverage and the average leverage of other firms in the same industry - Overvalue: difference between the firm i’s MB and the average MB of all other firms - EAE: difference between the firm i’s administrative expenses and the average administrative expenses of all other firms in the same industry - Nontradable: ratio of non-tradable shareholdings to total shares outstanding - Size: logarithm of total assets - Profit: earnings before interests and tax scaled by total assets - Debt: ratio of total debt to total assets - Volatility: difference between the standard deviation of the firm i’s daily stock returns and the average standard deviation of daily stock returns of other firms in the same industry - Gap: number of years between the last and the current SEOs. - Next: takes the value of one if the firm has another SEOs in 3 years subsequent to the current SEOs - Industry: industry dummy 7 Dasilas, S. Dividend signaling - BETA: systematic risk using data in the pre-event (estimation) period. 27 Leventis (2011) model - DY: ratio of dividend for the year over the price one day prior to dividend announcement. - SIZE: logarithm of market capitalization one day prior to the announcement day. - NV: logarithm of normal volume in the estimation period - %D : percentage change between the current and the previous dividend - PREAV: abnormal trading volume as a percentage of the average trading volume during the pre-announcement period. - DDUMMY : variable to indicate if the firms' dividend payment is below or above the minimum. - YEARS: dummy to control for year effects (Source: author’s recapitulation) 28 APPENDIX 4 DETERMINANTS OF MARKET REACTION TO COMPANY’S SEOs BY RANDOM EFFECTS AND FIXED EFFECT MODEL 1. Determinants of market reaction around SEO announcement day Determinants of market reaction around announcement day: panel data Random effects, Fixed effects estimation. This table presents results of regression on cumulative average abnormal return CAR[0;+2]. The sample period is from 2007 to 2013. The dependent variable is cumulative abnormal return in the period [0;+2]. TobinQ is measured as (Market value of stock + Book value of debt)/Book value of total assets; Mrunup indicates Market cumulative abnormal returns (VNIndex) in the period runs from day -65 to day -16, where day 0 is the announcement day; DA indicates Total debt/Total asset; Issuesize denotes Logarithm of the volume of stock issued; Firmsize is Logarithm of total assets; Industry effect and issue method effect are controlled by adding industry dummy (REC takes value 1 if SEOs issued company is listed in Real estate and construction group and takes value 0 otherwise, MAI takes value 1 if SEOs issued company is listed in Manufacturing industry group and takes value 0 otherwise, SER takes value 1 if SEOs issued company is listed in Service group and takes value 0 otherwise, FBI takes value 1 if SEOs issued company is listed in Financial – banking – Insurance services and takes value 0 otherwise, AFF takes value 1 if SEOs issued company is listed in Agriculture – Fishery – Forestry group and takes value 0 otherwise); and issue method dummies; RMH indicates ratio of managerial holding include the board of directors, board of supervisor, president and CEO/Total outstanding shares; t-statistics are in parentheses; *** Statistically significant at the 1% level; ** Statistically significant at the 5% level; * Statistically significant at 10% level. (1) (2) (3) Random effects Fixed effects Random effects Fixed effects Random effects Fixed effects CAR Coef. Coef. Coef. Coef. Coef. Coef. TobinQ 0.001 (0.69) 0.006 (1.50) 0.000 (0.36) 0.004 (1.06) Mrunup 0.052 (4.59)*** 0.055 (3.64)*** 0.052 (4.55)*** 0.053 (3.46)*** DA -0.004 -0.057 -0.002 -0.029 -0.002 -0.040 29 (-0.31) (-1.83)* (-0.13) (-1.01) (-0.14) (-1.30) Issuesize 0.002 (0.29) 0.005 (0.50) 0.001 (0.21) 0.003 (0.32) 0.000 (0.15) 0.003 (0.31) Firmsize -0.011 (-1.66)* 0.024 (0.99) -0.012 (-1.79)* -0.003 (-0.15) -0.011 (-1.66)* 0.014 (0.58) Industry 2 0.002 (0.39) -0.041 (-1.15) 0.004 (0.65) -0.031 (-0.90) 0.004 (0.63) -0.034 (-0.98) 3 0.005 (0.66) -0.031 (-0.71) 0.005 (0.74) -0.018 (-0.42) 0.005 (0.75) -0.021 (-0.49) 4 0.023 (1.54) (omitted) 0.027 (1.64) (omitted) 0.026 (1.59) (omitted) 5 0.019 (0.97) (omitted) 0.019 (0.95) (omitted) 0.019 (0.94) (omitted) Issuemethod -0.011 (-2.29)** 0.004 (0.43) -0.010 (-2.18)** 0.003 (0.41) -0.011 (-2.20)** 0.003 (0.39) RMH 0.000 (0.84) 0.000 (0.26) 0.000 (0.97) 0.000 (0.20) 0.000 (0.99) 0.000 (0.21) Cons 0.094 (2.48)** -0.167 (-0.95) 0.101 (2.70)** 0.045 (0.37) 0.097 (2.57)** -0.083 (-0.48) Prob > chi2 0.1279 0.0001 0.0002 Prob > F 0.6274 0.0309 0.0350 Hausman test -11.58 -8.30 -9.40 30 Obs. 565 565 565 565 565 565 * Significant at 10% level, ** Significant at 5% level, *** Significant at 1% level (Source: authors’ calculations) 2. Determinants of market reaction around SEOs ex-right day: Determinants of market reaction around ex-right day: panel data Random effects, Fixed effects estimation. This table presents results of regression on cumulative average abnormal return on CAR[0;+2]. The sample period is from 2007 to 2013. The dependent variable is cumulative abnormal return in the period [0;+2]. TobinQ is measured as (Market value of stock + Book value of debt)/Book value of total assets; Mrunup indicates Market cumulative abnormal returns (VNIndex) in the period runs from day -65 to day -16, where day 0 is the announcement day; DA indicates Total debt/Total asset; Issuesize denotes Logarithm of the volume of stock issued; Firmsize is Logarithm of total assets; Industry effect and issue method effect are controlled by adding industry dummy (REC takes value 1 if SEOs issued company is listed in Real estate and construction group and takes value 0 otherwise, MAI takes value 1 if SEOs issued company is listed in Manufacturing industry group and takes value 0 otherwise, SER takes value 1 if SEOs issued company is listed in Service group and takes value 0 otherwise, FBI takes value 1 if SEOs issued company is listed in Financial – banking – Insurance services and takes value 0 otherwise, AFF takes value 1 if SEOs issued company is listed in Agriculture – Fishery – Forestry group and takes value 0 otherwise); and issue method dummies; RMH indicates ratio of managerial holding include the board of directors, board of supervisor, president and CEO/Total outstanding shares; t-statistics are in parentheses; *** Statistically significant at the 1% level; ** Statistically significant at the 5% level; * Statistically significant at 10% level. (1) (2) (3) Random effects Fixed effects Random effects Fixed effects Random effects Fixed effects CAR Coef. Coef. Coef. Coef. Coef. Coef. TobinQ 0.003 (2.38)** -0.004 (-0.84) 0.003 (2.34)** -0.004 (-0.86) 31 Mrunup 0.008 (0.50) 0.005 (0.23) 0.005 (0.30) 0.007 (0.32) DA 0.016 (1.04) 0.009 (0.21) 0.016 (1.02) -0.002 (-0.05) 0.016 (1.04) 0.009 (0.21) Issuesize 0.021 (3.64)*** 0.039 (3.40)*** 0.023 (4.09)*** 0.037 (3.30)*** 0.021 (3.63)*** 0.039 (3.41)*** Firmsize -0.022 (-2.99)*** -0.098 (-3.02)*** -0.025 (-3.52)*** -0.079 (-3.30)*** -0.022 (-2.99)*** -0.099 (-3.03)*** Industry 2 -0.017 (-2.14)** -0.012 (-0.95) -0.016 (-2.01)** -0.011 (-0.89) -0.017 (-2.11)** -0.011 (-0.90) 3 -0.009 (-0.99) -0.013 (-0.91) -0.008 (-0.97) -0.013 (-0.88) -0.008 (-0.97) -0.013 (-0.87) 4 -0.013 (-0.87) 0.005 (0.20) -0.011 (-0.78) 0.004 (0.18) -0.013 (-0.86) 0.005 (0.22) 5 -0.011 (-0.45) -0.024 (-0.54) -0.005 (-0.21) -0.026 (-0.59) -0.011 (-0.45) -0.023 (-0.52) Issuemethod 0.010 (1.56) 0.007 (0.71) 0.011 (1.61) 0.008 (0.76) 0.010 (1.56) 0.007 (0.71) RMH -0.000 (-0.28) 0.000 (0.16) -0.000 (-0.50) 0.001 (0.36) -0.000 (-0.26) 0.000 (0.14) Cons 0.040 (1.03) 0.510 (2.15)** 0.056 (1.45) 0.375 (2.17)** 0.040 (1.03) 0.517 (2.17)** 32 Prob > chi2 0.0001 0.0008 0.0002 Prob > F 0.0237 0.0293 0.0365 Hausman test -10.72 -9.72 -10.78 Obs. 575 575 575 575 575 575 * Significant at 10% level, ** Significant at 5% level, *** Significant at 1% level (Source: authors’ calculations)