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Analysts coming from the industry they now cover are 3.6% more accurate in their earnings forecasts, write Daniel Bradley, Sinan Gokkaya and Xi Li

Two Essays in Seasoned Equity Offerings

Essay one investigates registered insider sales as stated in the final prospectus filed with the Securities and Exchange Commission (SEC) to test managerial market timing ability during the Seasoned Equity Offering (SEO) process. Using a comprehensive sample of 1,051 SEOs between 1997 and 2005, the findings suggest that the initial market reaction and the long-run post-issue performance of issuers are negatively related to C-level executive insider sales, but unrelated to sales by non-executive insiders. Overall, the findings are consistent with the notion that executive insiders are aware of the mispricing in their firm’s securities and successfully time their sales by participating in the secondary components of SEOs. The implication is that SEOs with C-level executive sales are overvalued relative to both SEOs without insider sales and SEOs with only non-executive insider sales. In the second essay, we compare shareholder wealth effects of dual-class and single-class Seasoned Equity Offerings (SEOs) between 1997 and 2005. While there is no difference in pre-issue stock performance or the initial market reaction to the SEO announcements, dual-class issuers significantly underperform single-class issuers in the post-issue years. The mean three-year underperformance of dual-class firms relative to single-class is a significant 28.93% (30.45%) in buy-and-hold raw (abnormal) stock returns, and robust to alternative model specifications. We document that this relative long-run stock underperformance is related to differences in the impacts of post-issue capital expenditures and acquisitions for dual and single-class issuers. Similarly, post-issue corporate cash holdings also contribute less to the shareholder wealth for dual-class firms

On The Direct Costs of REIT SEOs

This study examines the determinants of direct costs for real estate investment trust (REIT) seasoned equity offerings. These costs are not related to information asymmetries, unlike non-REIT firms. Gross spreads vary inversely with stock liquidity, price, and industry activity. Concerning REIT-specific heterogeneity, gross spreads are generally insensitive to property type and operating partnership structure. Still, the findings suggest managers can influence costs as higher fees are directly related to the use of underwriting syndicates and more reputable investment banks. Finally, a test for differences in direct costs across REIT and comparable industrials shows significantly lower direct issuance costs for REITs