This study examines the reason IPO firms conduct a primary seasoned equity offering (SEO)

What is it about?

This study develops a theoretical model that suggests the blockholder has an incentive to conduct an SEO after the IPO when the firm is experiencing growth that was not anticipated at the time of the IPO. This study empirically finds that IPO firms with higher unanticipated positive growth are more likely to conduct an SEO during the four years after their IPOs. We find that the firm's unanticipated shock and growth positively affect the relative size of the firm's seasoned equity offering. We also find that the firm's risk measure reduces the probability of conducting an SEO and reduces the relative size of an SEO.

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Why is it important?

Increasing number of IPO firms that conduct SEO after they went public indicates that there is a driving factor that influence newly publicly traded firms to conduct SEO right after their IPO. This study documents that firms' growth that was not anticipated at the time of the IPO is positively related with the likelihood and the size of the SEO.