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|کد مقاله||سال انتشار||تعداد صفحات مقاله انگلیسی||ترجمه فارسی|
|4825||2008||27 صفحه PDF||سفارش دهید|
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Publisher : Elsevier - Science Direct (الزویر - ساینس دایرکت)
Journal : Journal of Financial Economics, Volume 87, Issue 2, February 2008, Pages 281–307
This paper examines the motivations for public equity offers, using a sample of 17,226 initial public offerings and 13,142 seasoned equity offerings from 38 countries between 1990 and 2003. We estimate the uses of funds raised in both initial and seasoned offerings. Firms appear to spend incremental dollars on both R&D and capital expenditures, consistent with the investment financing explanation of equity issues. However, consistent with the mispricing explanation, high market to book firms tend to save more cash and offer a higher fraction of secondary shares in SEOs than low market to book firms.
The relation between equity markets and firms’ real decisions is an old and still extremely important topic in finance. Understanding this relation is complicated by the fact that there are a number of channels through which equity markets can affect firms. First, firms can raise capital to finance investments by selling equity in the public market. Additionally, if equity prices are higher than warranted by firms’ fundamentals, then by issuing equity, firms can increase the value of existing shares at the expense of new shareholders.1 Finally, when firms sell equity for the first time in an initial public offering, the firm changes in a number of ways that increase the liquidity of insiders’ portfolios and the firm's access to capital. Thus, there are at least three potential, though not necessarily mutually exclusive, motives for equity offerings: to finance investments, to transfer wealth from new shareholders to existing shareholders, and to increase liquidity for both insiders and the firm. The academic literature has yet to distinguish fully among these explanations. The only empirical paper we know of that addresses the question of the motivation for initial offerings is Pagano, Panetta, and Zingales (1998). These authors find that for a sample of Italian IPOs, the predominant reason firms go public is to rebalance their capital structure and to exploit mispricing, rather than to raise capital for financing investments. In contrast, a number of recent papers examine seasoned equity offers and find considerable support for the mispricing explanation. Loughran & Ritter (1995) and Loughran & Ritter (1997) and Baker and Wurgler (2000) find that equity offers lead to subsequent negative abnormal returns in the U.S., while Henderson, Jegadeesh, and Weisbach (2006) find similar results internationally. Greenwood (2005) documents that higher cash holdings lead to lower future returns at the aggregate level, consistent with firms issuing equity when their shares are overvalued rather than when they have a particularly high demand for capital. Finally, Baker and Wurgler (2002) present evidence suggesting that market timing of equity offers is so prevalent that it is an important determinant of firms’ observed capital structures. However, none of these papers provide an empirical link between equity issues and subsequent firm-level investments. Indeed, the literature is remarkably silent on the fundamental question underlying equity issues (and other capital-raising activities): How is the money raised in the offering used by the firms that raise it? This paper provides systematic evidence on this question, as well as other potential motives for issuing publicly traded equity. It relies on a sample of 17,226 initial public offerings and 13,142 seasoned equity offerings from 38 countries over the 1990–2003 period. The focus is on the ultimate use of the capital raised, how this use varies with firm valuation, and the extent to which this variation is consistent with alternative motivations for equity offers. To understand the reasons for equity offerings, it is important to distinguish between equity offerings that raise capital and those that do not. One aspect of equity offerings not emphasized by the corporate finance literature is the fact that firms have a choice of what kind of shares to offer.2 Firms can issue new, primary shares, or they can offer existing shares held by insiders, which are known as secondary shares. Only primary share issuances can be used to finance investments, since they lead to capital inflows to the firm. In contrast, the proceeds from the sale of secondary shares go to the insiders who sell them.3 To examine the effect of equity offerings on investment, we consider a variety of alternative accounting variables designed to capture the uses of the capital raised in the equity offering. While it is almost tautological that new capital into the firm has to show up somewhere on the books, there are a number of alternative possible uses for the capital. We examine increases in total assets, inventory, capital expenditures, acquisitions, R&D, cash holdings, and long-term debt reduction. We measure the increases in each variable over a variety of time intervals, ranging from one year to four years, and formally estimate the increase in the accounting variables that represent possible uses of the capital raised following IPOs. In doing so, we control econometrically for other sources of funds and firm size, and include year and country fixed effects as well. Our estimates indicate that the largest increase occurs in cash holdings; for every dollar raised in the IPO, cash holdings rise by 49.0 cents in the year after the IPO. This estimated increase in cash decreases to 38.8 cents when the equation is estimated over a four-year period after the IPO, presumably because the money is spent on various projects. Firms spend substantial amounts on R&D and capital expenditures, which increase by 18.5 cents and 9.9 cents, respectively, per dollar raised in the year following the IPO, and by 78.0 cents and 19.9 cents over a four-year period. These results are consistent with the investment financing motivation for equity offers. They also suggest that firms use equity offers to raise capital for a number of alternative projects that occur over a relatively long period of time, consistent with the arguments of Axelson, Strömberg, and Weisbach (2006). We next estimate similar equations predicting the uses of funds on the sample of SEOs. As for IPOs, we find substantial and statistically significant increases in investments, including R&D, capital expenditures, acquisitions, and inventory. Like IPOs, one motivation for SEOs appears to be raising capital for investments. In addition, firms appear to save a substantial fraction of cash raised in SEOs, which declines somewhat as the time horizon gets longer. This high savings rate could reflect firms issuing equity when their stock price is high, even if the capital raised in the offering is not required for financing investments. Finally, we explore the extent of market timing motivations in a more direct manner by relating the market to book ratio with the SEO issuance and investment decisions. First, we examine how the fraction of types of shares sold in an SEO is affected by potential mispricing. If firms sell shares because the stock price is particularly high, we expect that self-interested managers would sell a higher fraction of their personal shares through a secondary offering. In contrast, if we observe a firm issuing equity at times when the price is relatively low, then we would expect a higher proportion of shares sold to be primary. Consistent with these arguments, our empirical results suggest that, controlling for other factors, a higher abnormal valuation increases the expected fraction of secondary shares in the offering. When equity values, reflected by the market to book ratio, are high, managers are more likely to sell their own shares in a secondary offering so that they can benefit personally. We also examine whether the sensitivity of investment to primary capital raised in SEOs varies with the firm's market to book ratio. We do so because SEOs motivated by high valuations should occur in firms with relatively high market to book ratios. To the extent that these SEOs do provide additional capital, the new funds should be more likely to be kept as cash. However, when the purpose of the SEO is to provide capital for investments, we expect to see more of the money raised in the offering to be used to pay for these investments. Consistent with this intuition, we find that following an SEO, firms with low market to book ratios spend relatively more on inventories, capital expenditures, acquisitions, and long-term debt reductions than firms with high valuations. In contrast, firms with high market to book ratios tend to keep more cash from a marginal dollar raised than low valuation firms. These findings suggest that when firms with low market to book ratios do seasoned offerings, the purpose of these offerings is to fund investments, while firms with high market to book ratios are more likely to do seasoned offerings to take advantage of their higher valuation. Overall, the results suggest that equity offerings are done both to raise investment capital and to exploit favorable market conditions. Firms sometimes issue public equity to take advantage of a hot market. When they do so, they are more likely to use secondary offerings so that they can profit personally, or if they do issue primary shares, they tend to keep the proceeds as cash. However, firms also issue equity when stock prices are less favorable. In such cases, the offerings are more likely to consist of primary shares and the funds raised are used to finance acquisitions, to purchase inventory, to make capital expenditures, or to reduce long-term debt. The remainder of the paper is organized as follows. Section 2 describes our data sources and our sample. Section 3 presents the distribution of the primary and secondary shares offered in IPOs and SEOs across the 38 countries. Section 4 estimates the relation between the capital raised in IPOs and increases in assets and expenditures, while Section 5 performs a similar analysis for SEOs. Section 6 provides sub-sample analysis based on legal origins for both IPOs and SEOs. Section 7 reports the relation between the market to book ratio of the issuing firm and the proportion of secondary shares in the offering. It also presents results indicating how the firm's valuation, reflected by the market to book ratio, affects the use of these proceeds. Section 8 concludes.
نتیجه گیری انگلیسی
Public equity offerings are among the most visible and most studied events in finance. Yet, the basic question of why firms issue publicly traded equity has received relatively little attention in the empirical literature. We provide some evidence on this question using a sample of 17,226 IPOs and 13,142 SEOs from 38 countries. In particular, we estimate the actual uses of the funds raised in both initial and seasoned offers. In doing so, we incorporate only primary shares and exclude secondary shares sold by initial shareholders. We also consider how a measure of the firms’ overvaluation or undervaluation affects the issuance, both in terms of the type of shares offered and the use of the proceeds. Our results suggest first that equity offers are used to raise investment capital. Specifically, our estimates imply that R&D expenditures increase by 18.5 cents per marginal dollar of capital raised in the first year following an IPO, and by 17.8 cents per marginal dollar raised in the first year following an SEO. These figures increase to 78.0 cents per dollar raised if the changes are computed over the four-year period following IPOs and 64.3 cents for the four-year period following SEOs. These estimated expenditures are substantially, and statistically significantly, larger than the comparable numbers for a marginal dollar of internally generated cash. They also appear to be similar over alternative legal regimes. These results strongly suggest that one motive behind equity offers is to raise capital to finance investment. We also find evidence consistent with the view that some equity offers are made to take advantage of high valuations. A firm is likely to keep much of the money it raises in an equity offer as cash; this fraction is substantially higher when the firm has a high market to book ratio. In contrast, expenditures on investments are higher for low valuation firms than for high valuation firms. This pattern is consistent with equity offers from high valuation firms occurring, at least some of the time, to take advantage of potential overvaluation. In addition, SEOs offered by firms with a high market to book ratio tend to have a higher fraction of secondary shares, suggesting that insiders are taking advantage of the high valuation to sell some of their shares. Overall, these results are consistent with the view that equity offers are used both to finance investment and to exploit a firm's valuation when it is valued very highly by the market. The ability of equity markets to provide financing for firms outside the U.S. and the U.K. has been widely questioned (see La Porta, Lopez-de-Silanes, Shleifer, and Vishny (1997)). Yet in most regions of the world, capital raised in equity offerings, both initial and seasoned, leads to subsequent investment. Not all equity offers, however, appear to be used to finance investment; in some instances, firms issue equity to take advantage of favorable valuations. Measuring the relative importance of each motivation, the extent to which these motivations vary around the world, and the consequent implications for investment efficiency are important topics for future research.