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Market reaction to seasoned offerings in China

  • Jia Liu
    ,
  • Saeed Akbar
    ,
  • Syed Zulfiqar Ali Shah
    ,
  • Dayong Zhang
    ,
  • Dong Pang
Research Output: Contribution to journal Article Peer-review

Open access

Abstract

This study examines stock market reaction to the announcement of various forms of seasoned issues in China. Our empirical evidence demonstrates that market reactions differ in ways that suggest a difference between management's internal assessment and the market's assessment of the stock price. The market responds unfavourably to the announcement, notably in the case of rights issues and also with regard to open offers. Private placements experience an unfavourable pre-announcement reaction, which contrasts with the favourable reaction after the event. Convertible bond issues generate positive excess returns consistent with the market's confidence that they can help to align management and shareholders’ interests. Further investigation shows that market reaction is related to factors specific to the issuer and issue by reference to the period immediately surrounding the issue. Specifically, ownership concentration, agency matters connected with equity offerings, investor protection connected with fund allocation and security pricing, and the influence of powerful moneyed interests together provide an instructive insight into market reaction. Institutional inefficiency pertaining to underwriting, auditing, analysts’ forecasts and credit ratings are found to have a weak association with market price, consistent with due public scepticism concerning management and their gatekeepers.

Publication Information

Output type

Research Output: Contribution to journal Article Peer-review

Original language

English

Pages from-to (Number of pages)

Pages 597-653

Journal (Volume, Issue Number)

Journal of Business Finance and Accounting (Volume 43)

Publication milestones

  • Published - 27/06/2016

Publication status

Published - 27/06/2016

ISSN

0306-686X

External Publication IDs

  • handle.net: 10547/621937
  • Scopus: 84983453108

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