Announcement Effect of Primary Seasoned Equity Offerings of Common Stock: Evidence from the Swedish Stock Market

Sammanfattning: This study investigates the abnormal returns associated with announcements of primary seasoned equity offerings of common stock on the Swedish stock market. It provides a comprehensive discussion on equity offerings and their related theories, in addition to a thorough review of existing empirical research. Based on our event study analysis of data on rights and directed offerings for firms listed on Nasdaq Stockholm from 2018 to 2022, we identify a significant positive abnormal return of 1.09% during the three-day period surrounding the event day, on average. Our analysis further suggests that investors exhibit a tendency to overreact to seasoned equity announcements. Our cross-sectional regression analysis provides evidence in support of the Wealth Transfer hypothesis. Specifically, we observe that firms with higher debt-to-asset ratios experience a significantly reduced positive market reaction around the announcement date. Furthermore, our findings do not provide support for the Unanticipated Announcement hypothesis, the Signaling hypothesis, the Agency Costs of Free Cash Flow hypothesis, nor the Price Pressure hypothesis.