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Seasoned equity offerings and corporate governance in Europe

Seasoned equity offerings and corporate governance in Europe PurposeThis paper aims to analyze the effects on shareholder value caused by the announcement of seasoned equity offerings (SEOs) by real estate firms from 12 European countries.Design/methodology/approachA 4-factor model event study is conducted to assess the impact of SEO announcements on firm value. Additionally, a cross-sectional regression is run to identify factors that aggravate or mitigate the documented announcement effects.FindingsSignificant wealth losses of −1 per cent are found on the announcement day of an SEO. However, firms with good corporate governance and a low probability of overinvesting experience less negative announcement effects.Research limitations/implicationsThe present study considers equity financing. In this context, investors seem to thoroughly assess the implications of capital increases by looking at quality indicators. For firms with good corporate governance, management incentivizing mechanisms and a lower probability of overinvesting, shareholders’ trust in the management mitigates the bad signal that the announcement of an SEO usually conveys.Originality/valueThe finding of corporate governance as a value enhancing factor in the context of equity offerings, even during periods of financial turmoil, is reassuring to both managers and regulators. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of European Real Estate Research Emerald Publishing

Seasoned equity offerings and corporate governance in Europe

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Publisher
Emerald Publishing
Copyright
Copyright © Emerald Group Publishing Limited
ISSN
1753-9269
DOI
10.1108/JERER-05-2016-0019
Publisher site
See Article on Publisher Site

Abstract

PurposeThis paper aims to analyze the effects on shareholder value caused by the announcement of seasoned equity offerings (SEOs) by real estate firms from 12 European countries.Design/methodology/approachA 4-factor model event study is conducted to assess the impact of SEO announcements on firm value. Additionally, a cross-sectional regression is run to identify factors that aggravate or mitigate the documented announcement effects.FindingsSignificant wealth losses of −1 per cent are found on the announcement day of an SEO. However, firms with good corporate governance and a low probability of overinvesting experience less negative announcement effects.Research limitations/implicationsThe present study considers equity financing. In this context, investors seem to thoroughly assess the implications of capital increases by looking at quality indicators. For firms with good corporate governance, management incentivizing mechanisms and a lower probability of overinvesting, shareholders’ trust in the management mitigates the bad signal that the announcement of an SEO usually conveys.Originality/valueThe finding of corporate governance as a value enhancing factor in the context of equity offerings, even during periods of financial turmoil, is reassuring to both managers and regulators.

Journal

Journal of European Real Estate ResearchEmerald Publishing

Published: Aug 7, 2017

References