Overinvestment and the Operating Performance of SEO Firms
Year: 2010
Type: article
Abstract: Prior studies have documented that firms' operating performance deteriorates following seasoned equity offerings (SEOs). This paper proposes and empirically tests the hypothesis that this poor performance is the result of managers' overinvestment. I find that, subsequent to the offering, SEO firms tend to invest more heavily than nonissuing control firms that are in the same industry and have enough financial slack and similar investment opportunities. More importantly, I find a negative correlation between postissue investment and operating performance, controlling for investment opportunities and preissue performance. Overinvestment results in a reduction in asset productivity and is more severe for firms with relatively fewer investment opportunities.
Source: Financial Management
Author: Fangjian Fu
Institution: Singapore Management University
Language: English
Subfield: Accounting
Domain: Social Sciences
Open Access status: green
OpenAlex ID: W2108260356