Seasoned equity offerings and corporate governance in Europe
Abstract
Purpose
This 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/approach
A 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.
Findings
Significant 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/implications
The 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/value
The 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.
Keywords
Acknowledgements
The authors thank the Editor Stanley McGreal and two anonymous reviewers for helpful comments and assistance. Moreover, the authors are grateful for research funding from the TAG Center for Real Estate Asset Management at the Technische Universität Darmstadt, Germany.
Citation
Happ, C. and Schiereck, D. (2017), "Seasoned equity offerings and corporate governance in Europe", Journal of European Real Estate Research, Vol. 10 No. 2, pp. 170-194. https://doi.org/10.1108/JERER-05-2016-0019
Publisher
:Emerald Publishing Limited
Copyright © 2017, Emerald Publishing Limited