This paper studies the abnormal returns of seasoned equity offerings over short- and long-run horizons in Germany and their determining company characteristics. Contrary to previous findings for the German market, I find that the abnormal returns around the announcement are significantly negative with Run Up, Volatility, Firm Age and Earnings per Share as explanatory variables. The long-run abnormal returns are also significantly negative. The determinants of abnormal returns in the long-run are Run Up, Firm Age, Transaction Size, Size, Leverage and Profit Margin.
The findings suggest that there is a structural break in the German market in 2002/2003. Furthermore, the theoretical explanations suggested in prior research on the U.S. market are also valid for the German market.
Table of Contents
- Introduction
- Literature review
- Short-run Analysis
- Long-run Analysis
- German Evidence
- Data
- Methodology
- Abnormal Announcement Return
- Abnormal Buy-and-Hold Return
- Company Characteristics
- Robustness Tests
- Industry-adjusted Variables
- Outlier Robustness
- Results
- General Findings
- Short-run Findings
- Long-run Findings
- Robustness Tests
- Conclusion
Objectives and Key Themes
This paper investigates the abnormal returns of seasoned equity offerings (SEOs) in Germany, examining both short- and long-run performance. It aims to identify company characteristics that explain these returns and compare findings to existing literature, particularly focusing on the differences between the German and U.S. markets. The study also seeks to determine if a structural break exists in the German market.
- Short-term and long-term abnormal returns surrounding SEOs in Germany
- Determinants of abnormal returns (company characteristics)
- Comparison of German and U.S. market findings regarding SEOs
- Analysis of structural breaks in the German market related to SEOs
- The impact of market structure and legal frameworks on SEO performance
Chapter Summaries
Introduction: This chapter introduces the research topic by highlighting the controversy surrounding wealth destruction following equity offerings, particularly referencing Commerzbank's capital increases. It emphasizes the relative scarcity of up-to-date academic research on short- and long-run SEO performance in Germany and the motivation for comparing the German market with the extensively studied U.S. market. The chapter contrasts the bank-based financing system and Civil Law framework of Germany with the market-based system and Common Law of the U.S., posing the question of whether U.S. findings generalize to the German context. The influence of concentrated ownership and close relationships with principal banks in Germany is discussed as a potential factor affecting the severity of abnormal returns compared to the U.S. Finally, it mentions that earlier studies on German SEOs reported positive returns, unlike those in the U.S., suggesting the need for an updated analysis given recent market changes.
Literature review: This chapter reviews existing literature on seasoned equity offerings (SEOs), providing a theoretical foundation for the study and summarizing previous research on short-run and long-run abnormal returns associated with SEOs. It will critically assess the strengths and weaknesses of existing methodologies and highlight the gaps in existing research that this paper aims to fill. This section likely examines both the US and German contexts and contrasts the existing knowledge regarding SEO performance in both markets.
Data: This chapter details the data used in the study, outlining the sample selection criteria, data sources, and the characteristics of the firms included. This section explains how the data set was constructed, the time period covered, and any limitations of the data. It is likely to include descriptive statistics summarizing the key variables used in the subsequent analysis. This might include information about the number of SEOs, the size of the offerings, industry distribution, and other relevant firm characteristics.
Methodology: This chapter explains the research methods used to analyze the data. It describes the models employed to measure abnormal returns (both short-run and long-run), including the calculation of cumulative abnormal returns (CAR) and buy-and-hold abnormal returns (BHAR). The chapter provides details about the independent variables used to explain these abnormal returns, and includes a justification for the selection of these variables based on existing literature. The chapter will clearly outline the statistical techniques applied to test the hypotheses.
Results: This chapter presents the findings of the empirical analysis. It reports the statistical results of the regression analyses, indicating the significance of the independent variables in explaining short-run and long-run abnormal returns. This section might include tables and graphs to present the results clearly and concisely. It will likely discuss the magnitude and direction of the effects of each independent variable. Additionally, the findings from the robustness tests, such as those for industry-adjusted variables and outlier-robust regressions, would be detailed here.
Keywords
Seasoned Equity Offerings, SEO, Germany, Abnormal Returns, Buy-and-Hold Return, CAR, BHAR, Company Characteristics, Market Structure, Structural Break, Financial Markets.
Frequently Asked Questions: Analysis of Seasoned Equity Offerings in Germany
What is the main topic of this research paper?
This paper investigates the short-term and long-term abnormal returns of seasoned equity offerings (SEOs) in Germany. It aims to identify company characteristics that explain these returns and compares the findings to existing literature, particularly focusing on differences between the German and U.S. markets. A key aspect is the analysis of whether a structural break exists within the German market concerning SEOs.
What are the key objectives of the study?
The study's objectives include analyzing short-term and long-term abnormal returns around SEOs in Germany, identifying determinants of these abnormal returns (company characteristics), comparing German and U.S. market findings regarding SEOs, analyzing structural breaks in the German market related to SEOs, and assessing the impact of market structure and legal frameworks on SEO performance.
What is the structure of the paper?
The paper is structured into the following sections: Introduction, Literature Review (including short-run and long-run analyses and a focus on German evidence), Data, Methodology (detailing the calculation of abnormal announcement returns and buy-and-hold returns, company characteristics analysis, and robustness tests), Results (including general, short-run, and long-run findings, and robustness test results), and Conclusion.
What data is used in the study?
The paper details the data used, including sample selection criteria, data sources, and firm characteristics. Descriptive statistics summarizing key variables are provided. The specific time period covered and any data limitations are also explained.
What methodologies are employed?
The methodology section describes the models used to measure abnormal returns (both short-run and long-run), such as cumulative abnormal returns (CAR) and buy-and-hold abnormal returns (BHAR). It explains the independent variables used and the statistical techniques employed to test hypotheses. Robustness tests, including industry-adjusted variables and outlier robustness checks, are also detailed.
What are the key findings of the research?
The results section presents the statistical results of the regression analyses, showing the significance of independent variables in explaining short-run and long-run abnormal returns. The magnitude and direction of effects for each variable are discussed, along with findings from robustness tests.
How does the study compare the German and U.S. markets?
The study explicitly compares findings regarding SEO performance in the German market to those in the extensively studied U.S. market, highlighting differences potentially attributable to varying market structures (bank-based vs. market-based) and legal frameworks (Civil Law vs. Common Law). It considers the impact of factors like concentrated ownership and bank relationships.
What is the significance of the study's findings?
The research contributes to a better understanding of SEO performance in the German market, offering updated insights considering recent market changes. By comparing German and U.S. findings, it sheds light on the impact of market structure and legal frameworks on SEO returns and contributes valuable knowledge to the existing literature on SEOs.
What are the keywords associated with this research?
Key words include: Seasoned Equity Offerings, SEO, Germany, Abnormal Returns, Buy-and-Hold Return, CAR, BHAR, Company Characteristics, Market Structure, Structural Break, Financial Markets.
What is the context of Commerzbank mentioned in the introduction?
The introduction uses Commerzbank's capital increases as a case study to highlight the existing controversy surrounding wealth destruction following equity offerings and the need for updated research on SEO performance in the German market.
- Quote paper
- Andre Domes (Author), 2013, Seasoned Equity Offerings in Germany. Determinants of Short- and Long-run Abnormal Return, Munich, GRIN Verlag, https://www.grin.com/document/413705
