SEOs by Systemically Risky Banks: Do They Produce Stabilization Effects?

56 Pages Posted: 18 Jun 2020 Last revised: 22 Sep 2020

See all articles by Valeriya Dinger

Valeriya Dinger

Universität Osnabrück

Francesco Vallascas

Durham University; University of Leeds - Faculty of Business

Qi Zhang

Durham University

Date Written: August 31, 2020


Analyzing the stock return reaction for issuing and non-issuing US banks, we explore the systemic effects of seasoned equity offerings (SEOs) by systemically risky banks. We find that SEOs do not generate value benefits for systemically risky issuers. In contrast, non-issuers’ stock returns react positively when systemically risky banks raise equity, although less so in times of systemic distress. The benefits for non-issuers are amplified by more business similarity with the systemically risky issuer and sustain in the longer term. Our findings reflect positive systemic externalities from a reduced deleveraging risk of the issuer. Overall, our analysis justifies regulatory pressure on systemically risky banks to implement countercyclical recapitalization through SEOs, especially in more homogenous banking systems.

Keywords: SEOs, Banking Regulation, Banking Crises, Contagion, Systemic Risk

JEL Classification: G21, G28, G32

Suggested Citation

Dinger, Valeriya and Vallascas, Francesco and Zhang, Qi, SEOs by Systemically Risky Banks: Do They Produce Stabilization Effects? (August 31, 2020). Available at SSRN: or

Valeriya Dinger (Contact Author)

Universität Osnabrück ( email )

Neuer Graben
Osnabrück, 49074

Francesco Vallascas

Durham University ( email )

Mill Hill Lane
Durham, DH1 3LB
United Kingdom

University of Leeds - Faculty of Business ( email )

Leeds LS2 9JT
United Kingdom

Qi Zhang

Durham University ( email )

Old Elvet
Mill Hill Lane
Durham, Durham DH1 3HP
United Kingdom

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