Threat of hostile takeover and the cost of seasoned equity offerings
Article
Article Title | Threat of hostile takeover and the cost of seasoned equity offerings |
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ERA Journal ID | 19630 |
Article Category | Article |
Authors | Sheikhbahaei, Ali (Author) and Shams, Syed (Author) |
Journal Title | International Journal of Managerial Finance |
Journal Citation | 18 (1), pp. 156-180 |
Number of Pages | 25 |
Year | 2022 |
Place of Publication | United Kingdom |
ISSN | 1743-9132 |
1758-6569 | |
Digital Object Identifier (DOI) | https://doi.org/10.1108/IJMF-03-2020-0106 |
Web Address (URL) | https://www.emerald.com/insight/content/doi/10.1108/IJMF-03-2020-0106/full/html |
Abstract | Purpose – This paper investigates the relationship between a firm’s susceptibility to a hostile takeover and investors’ reactions to a seasoned equity offering (SEO). Design/methodology/approach – The study applies ordinary least squares (OLS) with fixed effects regression analyses to a sample of 2,517 observations from US listed companies. Event study methodology was employed to capture market reactions to the announcement of newly issued stocks. To achieve cross-sectional analyses, time variations in takeover laws allowed us to perform the desired tests across two decades of data. Findings – The results suggest that investors react positively to the announcement of an equity offering when the threat of hostile takeover is higher. The magnitude of positive stock market reactions varies over two decades due to time series variations in takeover laws. Furthermore, the findings show that a higher hostile takeover index (HTI) score reduces investors’ concerns about the inefficient usage of proceeds in acquisitions. Practical implications – The results demonstrate that the corporate takeover legal environment provides an important external governance mechanism through which investors’ confidence increases during an SEO event. The study’s empirical evidence implies that the extent of external disciplinary mechanism plays a significant role in reducing investors’ uncertainty about the misuse of raised capital. Originality/value – The exogenous fast-evolving legal environment surrounding the takeover market in the United Status allowed our study to bypass the endogeneity concerns in measuring governance strength. From the review of prior literature, this paper appears to be the first to use HTI scores to examine investors’reactions to a corporate announcement. |
Keywords | seasoned equity offering, corporate governance, hostile takeover index |
ANZSRC Field of Research 2020 | 380101. Agricultural economics |
380107. Financial economics | |
Public Notes | Files associated with this item cannot be displayed due to copyright restrictions. |
Byline Affiliations | Monash University |
School of Commerce | |
Institution of Origin | University of Southern Queensland |
https://research.usq.edu.au/item/q62w0/threat-of-hostile-takeover-and-the-cost-of-seasoned-equity-offerings
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