Seasoned equity offerings: stock market liquidity and duration of the completion cycle

Purpose – Short-term cash need plays a critical role in equity issuance decisions. Consequently, the ease with which a seasoned equity offer (SEO) is completed can have a direct effect on the cost of raising equity. The purpose of this paper is to examine whether liquidity is likely to affect the ease with which an offer is completed, as proxied by the length of the offer. Design/methodology/approach – This study uses multiple regression analysis to establish the link between liquidity and the duration of the SEO completion cycle. To provide support to the findings, event study methodology is employed to study the abnormal volume turnover during the pre-SEO announcement period for firms with shorter and longer registration periods. Findings – The paper finds that firms with greater liquidity come to market sooner. The results indicate a small yet significant effect of liquidity on the duration of the SEO completion cycle. There is also evidence that lower pre-announcement period volume turnover is associated with a longer registration period – which has some implications for issuance costs. The results are robust to the inclusion of industry or firm effects, use of different regression specifications, and application of alternative liquidity measures. Originality/value – This paper belongs to the growing literature that examines the link between liquidity and the firm's equity issuance costs. It adds to the literature by: examining the determinants of the time it takes to complete an offering; providing the evidence that liquidity may affect the ease with which investment bankers place new shares; and presenting the evidence using newer measures of liquidity based on low-frequency data.