Seasoned Equity Offerings

Seasoned Equity Offerings (SEOs) refer to the issuance of additional shares by publicly traded companies to raise capital or adjust their capital structure. This chapter delves into the cyclical patterns of SEOs, highlighting periods of low activity followed by significant surges, as illustrated by data from 1970 to 2015. The analysis compares public offerings and rights issues, noting that the latter are more prevalent in countries with concentrated ownership. The chapter explores the mathematics behind SEOs, including the potential expropriation of existing shareholders in public offerings and the avoidance of this issue through preemptive rights offerings. It also discusses the market reaction to SEOs, which is generally negative in the US due to factors like adverse selection and signaling theories. However, in countries where rights issues are the primary method, the market reaction is typically positive. The chapter concludes by examining various theoretical models and empirical evidence, providing a comprehensive understanding of the complexities surrounding SEOs and their impact on market dynamics.