What is it about?

The financial crisis that started in 2008 has generated significant losses for European banks, forcing them to undertake a series of seasoned equity offerings (SEOs) to reinforce their balance sheets in order to comply with regulatory capital requirements. As a result, they have produced repeated SEO waves in a relatively short time frame, when capital supply was limited due to the economic and financial context. We investigate the conditions at which European banks have been able to raise new equity capital by means of rights issues during the global financial crisis, demonstrating the existence of a first-move advantage: within a SEO wave, banks that acted first were able to complete the capital increase at more favorable conditions than their peers that acted later. We also show that first-movers experienced higher valuation ratios at the final cum-rights date compared to late-comers. As a result, first-movers obtained a double advantage: they could offer a lower discount on a price that embedded an higher valuation ratio

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Why is it important?

The article shows how the timing of a seasoned equity offering may affect the outcome of the offer itself, and in particular the dilutive effect on existing shareholders.


Why do certain banks have to offer large discounts when raising new equity, much larger than their competitors? In this paper, I argue that one reason may be the timing of the offering itself, and that being a first-mover creates a relative advantage with respect to the conditions that the competitors coming late to the equity market will have to offer.

Marco Botta
Universita degli Studi dell'Insubria

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This page is a summary of: First-move advantage in seasoned equity offerings: Evidence from European banks, Global Finance Journal, August 2019, Elsevier, DOI: 10.1016/j.gfj.2018.10.003.
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