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Anchoring on Historical High Prices and Seasoned Equity Offerings

Published online by Cambridge University Press:  17 September 2019

Armen Hovakimian Open the ORCID record for Armen Hovakimian [Opens in a new window]  and
Huajing Hu
Armen Hovakimian*
Affiliation:
Hovakimian, armen.hovakimian@baruch.cuny.edu, Baruch College Zicklin School of Business
Huajing Hu
Affiliation:
Hu, hhu@adelphi.edu, Adelphi University Robert B. Willumstad School of Business
*
Hovakimian (corresponding author), armen.hovakimian@baruch.cuny.edu
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Abstract

We document that firms’ financing decisions are affected by historical high prices. The ratio of the monthly high price to the 12-month historical high price positively affects the probability of a seasoned equity offering (SEO). Furthermore, the postannouncement market reaction is muted and the offering discount is smaller if the preannouncement stock price is high relative to its historical high price. The results suggest that historical high price reference points may help managers rationally time SEOs to take advantage of market reception and minimize issuance costs.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 55 , Issue 8 , December 2020 , pp. 2588 - 2612
Copyright
Copyright © Michael G. Foster School of Business, University of Washington 2019

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Footnotes

We thank Paul Malatesta (the editor), Jeffrey Wurgler (the referee), and the participants at the 2016 European Financial Management Association Meeting, 2013 Financial Management Association Meeting, 2012 Meeting of Academy of Behavioral Finance & Economics, and the seminars at Baruch College, Florida Atlantic University, and Miami University.

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