The Announcement Effect Of Primary Offerings Of Seasoned Equity In Chinese Stock Market: An Empirical Investigation

This paper investigates the announcement effect on stock price of seasoned equity offerings, it analyzes the factors that affect the announcement return by using the data of primary offerings issued from June 1998 to March 2001 in Chinese stock market.The results demonstrate that the announcement reduces stock price significantly, document a timing pattern of equity issues related to firm and stock market performance. The cross-sectional regressions of the announcement return indicate a significant negative relationship to the absolute size of offerings. The results confirm the conclusion by the Myers and Majluf pecking order theory that equity offerings usually issue when the stock is overvalued. The results are also consistent both with the Ross incentive signaling model and with the Modigliani and Miller leverage hypothesis. But the results are not supportive of the Jensen and Meckling agency model and the Leland and Pyle signaling model.