• corporate governance;
  • seasoned equity offering;
  • unanticipated shock

This study examines the reason behind the IPO firm's decision to conduct a primary seasoned equity offering (SEO). First, we develop a two–period model of blockholder incentives starting from the IPO stage. The model suggests that the blockholder has an incentive to conduct an SEO after the IPO when the firm is experiencing growth that was not anticipated at the IPO stage. Using a sample of IPO firms during 1992 to 1997, we find 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.