{"id":33555,"date":"2019-12-19T10:49:20","date_gmt":"2019-12-19T15:49:20","guid":{"rendered":"https:\/\/biznews.fiu.edu\/?p=33555"},"modified":"2020-01-14T10:23:55","modified_gmt":"2020-01-14T15:23:55","slug":"seos-increase-stock-price-volatility-and-reduce-profit-predictability-florida-international-university-study-reveals","status":"publish","type":"post","link":"https:\/\/biznews.fiu.edu\/2019\/12\/seos-increase-stock-price-volatility-and-reduce-profit-predictability-florida-international-university-study-reveals\/","title":{"rendered":"SEOs increase stock price volatility and reduce profit predictability, Florida International University study reveals."},"content":{"rendered":"

\"SEOs<\/p>\n

The lack of post-SEO consensus among investors makes a stock price increasingly volatile and can result in bad news for shareholders, according to a new study from Florida International University\u2019s College of Business<\/a> (FIU Business).<\/p>\n

But rather than live with volatility, investors can\u2014and should\u2014demand more disclosure from companies, and companies should proactively provide greater clarity about their objectives, researchers say.<\/p>\n

A seasoned equity offering (SEO), when a public company issues new shares, can considerably dilute the holdings of existing shareholders\u00a0because it increases the total amount of\u00a0outstanding shares. These transactions are often seen as a sign that management believes the company is in financial trouble and needs to sell equity at low prices or that their shares are overvalued.<\/p>\n

\"Suchismita
Suchismita Mishra<\/figcaption><\/figure>\n

\u201cA puzzling observation in the SEO market is that leading up to the announcement, there is a gradual decrease in price fluctuations,\u201d said Suchismita Mishra, professor of finance at FIU Business. \u201cHowever, immediately after the issue, the price of equity changes and the price fluctuates, goes bezerk and there can be a big fluctuation in profits.\u201d<\/p>\n

The research, forthcoming in the Journal of Financial Economics<\/em>, determined that following the SEO, managers don\u2019t have the same incentive to remain transparent about the information shared because they\u2019ve accomplished their objective: securing the required funding.<\/p>\n

As a result, Mishra noted, there is increased disparity in opinions about the firm\u2019s future prospects as to how and where the capital from SEO will be used. Added to that is investors\u2019 optimism or pessimism regarding potential growth.<\/p>\n

The researchers analyzed data on SEOs conducted by U.S. firms from January 1980<\/p>\n

to December 2011 in Thomson Reuters\u2019 Securities Data Corporation (SDC) Platinum database. Among the requirements were that companies be listed on the NYSE, AMEX or Nasdaq exchanges and that these weren\u2019t utilities or financial companies. The final sample examined 4,501 SEO issuances made by 2,630 firms.<\/p>\n

The results can make investors savvier and companies more strategic.<\/p>\n

\u201cInvestors can avoid behavioral biases such as herd mentality and overconfidence, demanding more disclosure about the project the money raised via SEO will be invested in,\u201d said Mishra. \u201cFirms can rethink their overall SEO implementation strategy and voluntarily disclose more details about the transaction during managerial guidance about Earnings per share (EPS) to analysts.\u201d<\/p>\n

The paper was co-authored by Mishra with finance professors Qiang Kang, FIU Business; Ann Marie Hibberta, West Virginia University; and Alok Kumar, University of Miami.<\/p>\n","protected":false},"excerpt":{"rendered":"

The lack of post-SEO consensus among investors makes a stock price increasingly volatile and can result in bad news for shareholders, according to a new study from Florida International University\u2019s College of Business (FIU Business). But rather than live with volatility, investors can\u2014and should\u2014demand more disclosure from companies, and companies should proactively provide greater clarity […]<\/p>\n","protected":false},"author":67,"featured_media":33557,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":"","_links_to":"","_links_to_target":""},"categories":[4],"tags":[619,2174,2229,2512],"amp_enabled":true,"_links":{"self":[{"href":"https:\/\/biznews.fiu.edu\/wp-json\/wp\/v2\/posts\/33555"}],"collection":[{"href":"https:\/\/biznews.fiu.edu\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/biznews.fiu.edu\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/biznews.fiu.edu\/wp-json\/wp\/v2\/users\/67"}],"replies":[{"embeddable":true,"href":"https:\/\/biznews.fiu.edu\/wp-json\/wp\/v2\/comments?post=33555"}],"version-history":[{"count":3,"href":"https:\/\/biznews.fiu.edu\/wp-json\/wp\/v2\/posts\/33555\/revisions"}],"predecessor-version":[{"id":33569,"href":"https:\/\/biznews.fiu.edu\/wp-json\/wp\/v2\/posts\/33555\/revisions\/33569"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/biznews.fiu.edu\/wp-json\/wp\/v2\/media\/33557"}],"wp:attachment":[{"href":"https:\/\/biznews.fiu.edu\/wp-json\/wp\/v2\/media?parent=33555"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/biznews.fiu.edu\/wp-json\/wp\/v2\/categories?post=33555"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/biznews.fiu.edu\/wp-json\/wp\/v2\/tags?post=33555"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}