Industry Screening: Evidence from Seasoned Equity Offerings

39 Pages Posted: 17 May 2005

See all articles by Leroy D. Brooks

Leroy D. Brooks

John Carroll University - Boler School of Business

Xuanjuan Chen

Shanghai University of Finance and Economics

Tong Yu

University of Cincinnati - Department of Finance - Real Estate

Date Written: December 2006

Abstract

Investors may rely on industries to judge the quality of seasoned equity Offerings. In this paper, we propose an industry screening hypothesis where poorer industrial growth prospects deter lower-quality firms from issuing equity. We expect issuer quality to be negatively associated with industry growth opportunities. Our empirical evidence shows that low-growth industry issuers outperform those from high-growth industries in their announcement period cumulative abnormal returns and post-issue operating performance. These results are robust against alternative explanations. We interpret these findings as evidence for the existence of the industry screening eect.

Keywords: Asymmetric information, adverse selection, industry effect, screening

JEL Classification: G14

Suggested Citation

Brooks, Leroy (Roy) D. and Chen, Xuanjuan and Yu, Tong, Industry Screening: Evidence from Seasoned Equity Offerings (December 2006). Available at SSRN: https://ssrn.com/abstract=722663 or http://dx.doi.org/10.2139/ssrn.722663

Leroy (Roy) D. Brooks

John Carroll University - Boler School of Business ( email )

University Heights, OH 44118-4581
United States

Xuanjuan Chen

Shanghai University of Finance and Economics ( email )

777 Guoding Road
Shanghai, AK Shanghai 200433
China

Tong Yu (Contact Author)

University of Cincinnati - Department of Finance - Real Estate ( email )

College of Business Administration
Cincinnati, OH 45221
United States
4019548606 (Phone)
4019548606 (Fax)

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