Institutional Shareholder Investment Horizons and Seasoned Equity Offerings


  • I thank two anonymous referees, Elijah Brewer, Paul Brockman, Bill Christie (former editor), Keith Howe, Li Jin, Sonya Lim, Marc Lipson (Editor), Alexander Ljungqvist, Biljana Nikolic, Andy Puckett, Jay Ritter, Karen Schnatterly, Richard Sias, Rick Smith, Russ Wermers, Chunchi Wu, Sterling Yan, Jenny Zhang, Lu Zhang, and seminar participants at the University of Missouri at Columbia, DePaul University, the University of California at Riverside, and the University of Texas at Arlington for their comments. This project was started while I was working at the University of Missouri.


Firms with more short-term institutional shareholders experience significantly more negative abnormal returns at the announcement of seasoned equity offerings. This effect is strong for primary offerings (only firms receive proceeds), but is not present for secondary offerings (firms do not receive any proceeds). Furthermore, a shorter institutional shareholder investment horizon predicts poorer postissue abnormal operating performance and the negative effect of a shorter shareholder horizon is mitigated by higher managerial ownership. My results are consistent with the argument that long-term shareholders more carefully monitor managerial activities and prevent misuse of the cash flow provided by equity issues.