Ownership Structure and the Choice of SEO Issue Method in the UK

Abstract

Purpose This study analyses the role of ownership characteristics in a firm’s choice of alternative seasoned equity offering methods, offer price discounts and market reactions to such announcements within the UK setting. Design/methodology/approach Our study examines 697 seasoned equity offerings events of firms traded in the UK during the period 1998 to 2012 using multivariate and binomial logistic regression models. Ordinary least square models are also used to examine how ownership variables affect offer price discounts and stock market performance during the announcement of such corporate events. Findings We show that placings and open offers are the preferred methods for issuing equity by firms with higher managerial ownership. Thus, our evidence strongly supports the prediction of the entrenched management hypothesis. Moreover, the probability of choosing a combination of placings and open offers is also found to be significantly related to issue size, offer discount, leverage and previous stock performance. Our results show that pre-issue market conditions have a significant effect on the choice of issue method with rights offers and the combination of placings and open offers primarily utilised by firms for issuing equity during hot market periods. Originality/value Unlike prior seasoned equity offerings’ studies in the UK that predominantly concentrate on the use of rights offers and placings, this study examines, for the first time, the link between open offers and the combination of placings and open offers with ownership concentration. We also investigate how offer price discounts are related to the firms’ ownership structure, various company micro-characteristics and the wider market conditions.