Post-SEO Acquisitions and Long-Run Performance

Seasoned equity offerings (SEO) and initial public offerings (IPO) affect negatively on long-run returns. Similarly, acquisitions affect negatively on acquiring firms’ long-run returns. These events have historically been studied separately. However, there was recently a study combining IPOs and acquisitions, which showed, that post-IPO acquisitions explain post-IPO long-run underperformance. Similarly, post-SEO investments have recently gained more attention. In this thesis, I examine the effect of post-SEO acquisitions on post-SEO long-run performance, which to my knowledge has not been studied before. I use buy-and-hold abnormal returns in my univariate analysis. I study the performance of U.S. firms conducting SEOs between January 1, 1980 and December 31, 2011. I study the performance relative to style-adjusted benchmark firms and market. I separate the SEO firms to firms, that acquire within 1-4 years after SEO and to firms, that do not acquire within 1-4 years after SEO and study the difference in their performance. My univariate analysis indicates, that post-SEO acquisitions do not solely explain the post-SEO underperformance. “Nonacquiring” SEO firms outperform “acquiring” SEO firms, but the nonacquiring SEO firms underperform relative to market and benchmark firms. My multivariate analysis supports the results of my univariate analysis. Conducting an acquisition within one year after SEO causes on average -8.1 % effect on 3-year buy-and-hold market-adjusted returns, in which the performance measurement is started one year after SEO. This effect is relatively small as all SEO firms underperform on average by -23.9 % in the same period relative to market. I also conduct calendar-time factor model regression, that shows no great difference in the performance between acquirers and nonacquirers. The statistical significance of my results varies through the thesis leaving room for interpretation. However, many of my results are statistically significant in both univariate and multivariate analysis. Therefore, I conclude, that it is very unlikely, that post-SEO acquisitions would solely explain the post-SEO underperformance