Seasoned Equity Offering Timing And Corporate Performance

Seasoned Equity Offering generally refers to right offering and secondary public offering,which can help enterprises accumulate capital and seize potential opportunities.However,the practice of capital market at home and abroad shows that the performance of listed companies after equity refinancing tends to show a decline in the medium and long term.This phenomenon is known by scholars as "New Issues Puzzle".The current Chinese economy is steadily entering the new normal,and the process of deepening structural reforms is gradually being carried out in an orderly manner.If it is clear what causes the decline in SEO's performance in the later stages,recommendations based on the conclusions obtained will be targeted to improve equity refinancing.The efficiency of the use of behavior will have a positive impact on the healthy development of China's capital market.The academic community has put forward many hypotheses to try to explain the reasons for the decline in performance,such as "Earnings Management Hypothesis","Free Cash Flow Hypothesis","Windows of Opportunity"," Expropriation Hypothesis","Overinvestment Hypothesis","Tunneling Hypothesis",etc.This paper chooses “Expropriation Hypothesis” from the perspective of motivation and chooses “Windows of Opportunity” from the perspective of strategy,trying to combine the two to explain the reasons for the decline in SEO performance.Among them,the motive of “Expropriation Hypothesis” distorts the financing function of the securities market,and the motive is mainly reflected in the abuse of subsequent raised funds,which will result in inefficient use of funds and bring about a subsequent decline in performance.In addition,timing financing has its own special features compared to ordinary financing.Because it uses the windows of opportunity and chooses the timing to raise more funds.This puts higher demands on the manager's ability.In fact,the company's equity refinancing process may be a combination of “Expropriation” motives and market timing behaviors.If the “Market Timing” strategy is to serve the “Expropriation” motive,it will further increase the degree of misuse of funds and bring More serious performance deterioration.This paper first uses the event study method to confirm that the stock price effect of China's SEO announcement is significantly positive.The “Windows of Opportunity” hypothesis suggests that companies will choose to issue new shares when their asset value is overvalued,so a significant positive market response can partly explain the existence of a time-based financing phenomenon.On this basis,the regression model of SEO raised capital and timing agent variables is constructed,and the positive relationship between timing variables and SEO fundraising proxy variables is confirmed,which further illustrates the existence of timing behavior in China's equity refinancing market.Secondly,this paper builds a regression model for the performance returns of the current and the next one to three years and finds that there is a “New Issues Puzzle” in China,and there is a significant negative relationship between the timing variables and the performance in the next one to three years.Explain that timing is related to the decline in SEO's subsequent performance.Finally,this paper chooses to construct a regression model for the amount of SEO raised and the proxy variables of the raised funds and explores why the performance declines from the perspective of the use of funds.It is found that not only the abuse of funds can lead to a decline in performance,but also the deterioration of performance on the basis of abuse,indicating that the “Timing” strategy is combined with the “Expropriation Hypothesis” motivation.The former exacerbates the latter's deterioration of performance and explains together.One of the academic contributions of this paper: Based on the low degree of effectiveness of China's capital market,this paper starts from the two perspectives of “Expropriation Hypothesis” motivation and “Windows of Opportunity” strategy,and measures “Expropriation Hypothesis” from the perspective of post-mortem fundraising abuse.The severity of the problem is more comprehensively related to the complete refinancing process,which is more convincing than the reason why the former used only a single hypothesis to explain the decline in SEO performance.The second academic contribution of this paper: This paper promotes the research boundary of predecessors through in-depth discussion of the specific mechanism of how the abuse of raised funds affects the change of profits and strives to put forward specific improvement opinions on the healthy development of the capital market.The predecessors' research starts with the SEO motivation,analyzes what factors are driving the SEO process in China,and lacks the discussion of the motivation and the impact on performance.This article does not stop at the motivation research but explores the "Market Timing" in a deeper way.The extent and way the strategy is used will have an impact on performance.