Stock derivatives and seasoned equity offerings

PurposeThe article aims to explore if stock derivative types (stock options and stock warrants) are associated with stock returns for firms undergoing seasoned equity offerings (SEOs).Design/methodology/approachThe authors regress stock returns against stock derivatives for periods around SEO announcements with standard errors clustered at the month level.FindingsThe authors find that lower stock derivatives holdings for the fiscal year after the SEO are associated with superior pre-SEO returns. This can be explained by owners exercising their derivatives to capitalize on the pre-SEO price run-up. The authors find that greater stock option holdings by insiders for the fiscal year after the SEO are associated with superior post-SEO returns for up to ten years after the SEO announcement. This new finding does not hold for stock warrants.Research limitations/implicationsStock derivatives are supplied by Capital IQ. Given their description, the authors infer that stock options are owned largely by insiders. Thus, the insider conclusions for stock options depend on this implication.Practical implicationsStock options and stock warrants can be used strategically to reward stock derivative owners of strong performing firms for past performance. Stock options can be used to motivate insiders (primarily key executives) to achieve superior future performance.Originality/valueThis study is unique in comparing the influence of holdings for stock options and stock warrants on stock price performance around SEOs. The authors show that the sign of the association depends on whether the test includes pre-SEO periods.

Earnings Management and New Listings: Evidence from Vietnam

Earnings management around corporate events has been widely discussed in literature review which has shown mixed results. Furthermore, prior studies have extensively focused on earnings management around initial public offerings (IPOs) and seasoned equity offerings (SEOs), while less attention has been given to the listing event. Another motivation comes from the context of the undeveloped market. While earnings management has been widely discussed in developed countries, it is still limited in emerging countries in general and in Vietnam in particular, due to the lack of research on this phenomenon and the unique institutional feature and pre-listing profit requirement in Vietnam’s stock market. This research is conducted to investigate the earnings management behaviour around listing event in Vietnam. The sample of this study consists of financial data from 189 newly listed companies on the Ho Chi Minh City Stock Exchange (HOSE) for the period of 2009–2017. Four cross-sectional models were used to estimate earnings management, including two total accruals-based models and two current accruals-based models. This research makes important contributions to the body of literature on Vietnam’s stock market. First, this study provides empirical evidence suggesting a greater positive earnings management practice of newly listed firms in current accrual models than those in total accrual models. Second, the results from both parametric and non-parametric test statistics show that HOSE-listed firms present higher levels of earnings management in the year prior to the listing than those in post-listing year and two subsequent years after listing. Finally, new listing requirements in 2012 require the company’s return on equity (ROE) in the most recent year to be at least 5%. However, the paper finds no evidence to suggest that relative to all newly listed firms after the new profit requirement exhibit greater positive earnings management than that of firms listed before the change in pre-listing year.

Seasoned Equity Offerings and Differences in Share-Price Impact by Firm Categories

The seasoned equity offering (SEO) market plays a significant role in the economic development of a country by providing liquidity for ongoing commercialization and innovation. This study is a comprehensive analysis of 149 SEOs and their effect on share prices in Thailand between 2009 and 2019. SEOs are categorized based on their time categories (early, mid, and grown) and volume categories (small, medium, big, and super). Using the event study methodology (multi-factor model), we find that most SEOs under both categories have a negative cumulative abnormal return (CAR) in the window period. Ranking the types of SEOs reveals that grown SEOs have the highest proportion of negative CAR under the time categories. Under the volume categories, medium SEOs show the largest share. The results were validated by regression assumption tests provided by Gnu Regression, Econometrics and Time-series Library, and correspond to established theories. The paper also contains an extensive literature review of studies examining the link between SEOs and share-price development. Our findings have important implications for corporations, investors, and regulatory bodies and can thus help in increasing market confidence for sustainable corporate funding.