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Market reaction to seasoned offerings in China
Liu, J. Akbar, Saeed Shah, S.Z.A. Zhang, D. Pang, D.
Liu, J.
Akbar, Saeed
Shah, S.Z.A.
Zhang, D.
Pang, D.
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Publication Date
2016-06
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© 2016 The Authors Journal of Business Finance & Accounting Published by John Wiley & Sons Ltd.
This is an open access article under the terms of the Creative Commons Attribution License, which permits use, distribution and reproduction in any medium, provided the original work is properly cited.
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10/02/2016
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Abstract
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.
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Liu J, Akbar S, Shah SZA et al (2016) Market reaction to seasoned offerings in China. Journal of Business Finance & Accounting. 43(5-6): 597-653.
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