The Stock price informativeness and the Impact of Seasoned Equity Offerings on the Firm's Stock Liquidity

Résumé

This paper studies the impact of the firm's stock price informativeness on the stock's liquidity improvement after seasoned equity offerings (SEOs). Our sample comprises 22,107 SEOs made by European firms between 2000 and 2020 and a matched sample of firms that have not made SEOs during the same year. Using a battery of liquidity measures, we find that liquidity improves significantly post-SEO and this improvement is positively and significantly related to the informativeness of the stock price during the pre-issue period. Our results are robust to size and book-to-market effects, SEO under-pricing, issue size, and are not driven by the persistent liquidity improvements over time. Our results are also stable after controlling for country effects and show that the information factor is stronger in explaining liquidity improvements around SEOs in less well-developed countries. Overall, our study proves the importance of the information factor as a determinant of the firm's stock liquidity improvement at SEOs.