Stock Price Performance Following Equity Offerings at Oslo Stock Exchange: Is Investing in SEO Companies Hazardous to Your Wealth?

Abstract

I examine the stock price performance following a seasoned equity offering at Oslo Stock Exchange. Through an empirical analysis I find that the existence of a negative announcement effect associated with issuing seasoned equity, as well as a long-run underperformance, is also applicable in the Norwegian market. The level of asymmetry can to a large extent explain the price drop and varies with characteristics like sector, offering size, floatation method, and pre-offer performance. The long-run performance results are more contradicting. By using a three-factor model based on the Fama and French model I find that issuing firms underperform in a three-year period following the issue. It is however argued that such a long-run underperformance is a result of mis-measurement between the issuing and non-issuing companies. This is in accordance to the market efficiency theory where the measured underperformance is only a result of the applied model not being able to price all risks. Keywords: Announcement effect, long-run underperformance, information asymmetry, mis-measurement of risk, size, three-factor regression model