“The Marketing of Seasoned Equity Offerings” by Xiaohui GAO
Authors:
Xiaohui GAO
University of FloridaJay R. RITTER
University of Florida
Accelerated seasoned equity offerings (SEOs), which include bought deals and accelerated bookbuilt offers, have increased dramatically in the U.S. recently. Accelerated offers are cheaper than traditional fully marketed offers in terms of direct issue costs. To explain why some issuing firms choose a fully marketed offer instead of an accelerated offer, we develop a model in which marketing flattens the issuer’s demand curve and lowers the indirect issue costs. Empirical analysis confirms our model’s predictions and shows that the pre-issue elasticity of the issuing firm’s demand curve is a very important determinant of the offer method.
