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Pricing of Seasoned Equity Offers and Earnings Management

Published online by Cambridge University Press:  06 April 2009

Yongtae Kim  and
Myung Seok Park
Yongtae Kim
Affiliation:
y1kim@scu.edu, Leavey School of Business, Santa Clara University, 500 El Camino Real, Santa Clara, CA 95053
Myung Seok Park
Affiliation:
mspark@vcu.edu, School of Business, Virginia Commonwealth University, 1015 Floyd Avenue, Richmond, VA 23284.
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Abstract

This study examines the relations between earnings management by firms offering seasoned equity issues and the pricing of their offers. We hypothesize that seasoned equity offering (SEO) firms that employ aggressive accounting decisions also more aggressively push up their offer prices, thereby leading to a decrease in the degree of underpricing. Consistent with our prediction (the issuer's greed hypothesis), evidence indicates that SEO firms that make opportunistic accounting decisions issue new shares at inflated prices. Our findings remain robust after controlling for other determinants of SEO underpricing and the possible endogeneity of pricing and earnings management.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 40 , Issue 2 , June 2005 , pp. 435 - 463
Copyright
Copyright © School of Business Administration, University of Washington 2005

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