The Research On SEO Announcement Effect In A-Share Market And Its Factors

This paper studies announcement effect to Seasoned Equity Offerings (SEO) in A-share market and its factors through a sample of 155 offerings with announcement days of issuance from February 2007 to June 2008. This study focuses on the influence of investor sentiment and issuance type on announcement effect. The empirical results of whole samples show that in the window of announcement day of general meeting, there is a negative stock price reaction to SEO which could be explained by price pressure hypothesis. Two factors may contribute to the inverted V shape of average cumulative abnormal return in the window of announcement day of formal issuance scheme: stock price manipulation caused by pricing mechanism of public offerings, and reassurance value contained in the announcement of formal issuance scheme.The results of divided groups show that investor sentiment theory has explanatory power to announcement effect. There is a gradual process of investor sentiment changes under different market situations, namely bullish and bearish, which agrees with the tendency of average cumulative abnormal return. Private placements of SEO indicate different motivational information, so it is easier for the market to make a better expectation about the company's future operation. Therefore, there is a positive stock price reaction to private placements of SEO. But relative to public offerings, the positive announcement effect of private placements is not robust with different market situations. It could be explained by the changes of investor sentiment under different market situations, a new factor raised by behavioral finance theory.Research of cross sectional regressions indicates that it is not easy to provide reasonable explanations to announcement effect in A-share market with traditional theories, such as leverage hypothesis, growth opportunity hypothesis, free cash flow hypothesis, dual ownership structure hypothesis and over financing motivation hypothesis. Further, price pressure hypothesis and information asymmetry hypothesis have limited explanatory power. However, an explanation by investor sentiment and issuance type may be more applicable in A-share market, proved by agent variables of the two factors getting the expected sign and significance in regression models.