The Announcement Effect and Long-run Post-Issue Performance following Seasoned Equity Offerings: A study on the Belgian, Dutch, French and German market between 1990 and 2012

Christian Daniel Silzle & Max Roger Ung

Student thesis: Master thesis


The objective of this study is twofold. First, it aims to establish if there are any abnormal returns, both in the short- and long-run, for firms that issued equity in Germany, France, Netherlands and Belgium between 1990 and 2012. The paper examines the immediate market reactions at the time of the SEO announcement by using a market model event study and also, the long-run returns following the SEO by using a Buy-and-Hold-Abnormal-Return (BHAR) and Calendar-Time Portfolio (CTP) approach. Secondly, it also aims to investigate predictability of the long-run performance of SEO firms based on how the market reacted at the time of the SEO announcement. In addition to identifying patterns based on the immediate market reactions, the paper examines potential variables determining the short- and long-run performance respectively, which can be used for discussing predictability of long-run returns and hence, potential trading strategies. We conclude that firms in Germany, France, the Netherlands and Belgium, which issued equity between 1990 and 2012, experience negative market reactions owing to a SEO announcement. This is in line with previous research on the subject, while it seems like the negative market reactions in our examined markets are less severe compared to the US and UK. With regards to the long-run stock performance following SEOs, the literature is not in consensus on which methodology to use. Some scholars favor the BHAR, while others favor the CTP approach. We find contrasting results based on the methodology and weighting scheme used. Our BHAR results indicate that larger firms underperform over three years, while our CTP results indicate that smaller firms underperform over three years. Furthermore, we find no evidence that the market reactions can explain the long-run returns following a SEO. Lastly, based on the market reactions of the SEO firms and our explanatory variables, we find that the most negative BHAR, and thus the most profitable trading strategy, seems to be realized by shorting the stock of firms that experienced positive announcement effects and consequently repurchasing the stock after 2 years. This potential profit increases even further if: it is the first time the firm issues equity, the relative size of the issue is large, the issuing firm has a low market capitalization, the firm saw an increase in their stock price during the 11 months prior to the SEO and if the firm is an IT company.

EducationsMSc in Finance and Strategic Management, (Graduate Programme) Final Thesis
Publication date2016
Number of pages153