Seasoned Equity Offers: The Effect of Insider Ownership and Float

• Published in: Financial management Vol. 39; no. 4; pp. 1575 - 1599
• Main Authors: Intintoli, Vincent J., Kahle, Kathleen M.
• Format: Journal Article
• Language: English
• Published: Melbourne, Australia Blackwell Publishing Asia 01.12.2010; Wiley Subscription Services; Financial Management Association
• Subjects: Computer services industry; Demand curves; Determinants; Financial management; Financing methods; Going public (Securities); Initial public offerings; Investments; Liquidity; Market prices; Nasdaq Composite Index; Ownership; Pricing; Proxy reporting; Proxy statements; Shares outstanding; Stock exchanges; Stock prices; Variable coefficients; Wealth; United States
• ISSN: 0046-3892; 1755-053X
• DOI: 10.1111/j.1755-053X.2010.01123.x

Seasoned equity offering (SEO) underpricing has increased dramatically since the early 1980s. While previous research has examined the determinants of SEO underpricing, these studies have not explored the effect of insider ownership on discounts. We find that this effect is twofold. First, higher insider ownership reduces float, thereby increasing price pressure and SEO underpricing. This effect is greatest in firms with low liquidity. Second, the greater the percentage of secondary shares offered, the lower the underpricing, suggesting that manager's pressure banks to reduce underpricing when their personal wealth is at stake. However, we find that this negative relation is mitigated if the firm employs a prestigious underwriter.