SEOs in a 'Hot Market': evidence of timing

This study analyses the financing decision of raising equity through a rights issue in a developing market, the Athens Stock Exchange (ASE), during a particular emerging period. Specifically, this study examines the information content of accounting items derived from published financial statements the year prior to a 'hot' period in explaining post-issue stock price performance. We are using data from listed companies in the ASE during the 'hot period' of year 1999 when stock prices burst and an unusual large number of seasoned equity offerings (SEOs) took place. Our empirical results do not verify a statistically significant relationship between discretionary accruals in the year preceding the issue and post-issue stock returns. Moreover, historical accounting items do not provide value relevant information and cannot be used to explain post-issue stock returns. Market trend prior to the issuing is proved to be the only significant variable in explaining post SEO returns. The overall findings are in line with the market timing theory which claims that managers just time their equity issues in an upward moving market in order to increase the offering proceeds.