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ADVERSE SELECTION, SPREAD BEHAVIOR, AND OVER‐THE‐COUNTER SEASONED EQUITY OFFERINGS

ADVERSE SELECTION, SPREAD BEHAVIOR, AND OVER‐THE‐COUNTER SEASONED EQUITY OFFERINGS In this paper the effects of over‐the‐counter seasoned equity issuances on the percentage bid‐ask spreads around announcement and offer dates are examined. A declining spread in the pre‐announcement period suggests that resolution of information asymmetry begins well before the announcement date. Further, using issue size as a proxy for the extent of information asymmetry, we observe that spreads for larger issues reach “normal” levels before the first public disclosure of the offering. For smaller issues this occurs only on the offer date. Results are consistent with the dealer experiencing reduced adverse information risk as a result of information‐gathering efforts during the underwriting process. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png The Journal of Financial Research Wiley

ADVERSE SELECTION, SPREAD BEHAVIOR, AND OVER‐THE‐COUNTER SEASONED EQUITY OFFERINGS

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References (19)

Publisher
Wiley
Copyright
© The Southern Finance Association and the Southwestern Finance Association
ISSN
0270-2592
eISSN
1475-6803
DOI
10.1111/j.1475-6803.1992.tb00785.x
Publisher site
See Article on Publisher Site

Abstract

In this paper the effects of over‐the‐counter seasoned equity issuances on the percentage bid‐ask spreads around announcement and offer dates are examined. A declining spread in the pre‐announcement period suggests that resolution of information asymmetry begins well before the announcement date. Further, using issue size as a proxy for the extent of information asymmetry, we observe that spreads for larger issues reach “normal” levels before the first public disclosure of the offering. For smaller issues this occurs only on the offer date. Results are consistent with the dealer experiencing reduced adverse information risk as a result of information‐gathering efforts during the underwriting process.

Journal

The Journal of Financial ResearchWiley

Published: Mar 1, 1992

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