THE EFFECT OF PRE-OFFERING EARNINGS AND RELEASES OF SEASONED EQUITY ON STOCK PRICE BEHAVIOR

Abstract

The purpose of this study was to examine event day price reaction to seasoned equity issue announcement and to investigate the impact of earnings information at the time offering to the effect. The data was collected from all Finnish public firms on Helsinki Stock Exchange that offered seasoned equity during 1998-2001 periods. The earning was classified into three group :( 1) positive earning group; (2) negative plus group; (3) negative minus group. Each of the three earning categories and announcement of equity issue on stock price was investigated.

Consistent with the previous study, this study finds that there is significant negative cumulative abnormal return of 3.7% around seasoned offering in Finnish stock market during 1998-2001 periods. However, the firm that had positive earnings at the time of offering seems to have fared better than the firms that had negative earning. Although the result indicate that stock prices of all three groups dropped down significantly, the firms offering seasoned equity with the losses earnings had the most significant negative (9.2%) cumulative abnormal return. This result suggest that it is seems not to be recommended the firm issuing the equity at the time losses earning. The general findings in this study suggest that the information content of earning at the time issuing seems to be used to predict the stock price behavior around seasoned equity offering announcement.