Withdrawn Security Offerings

TLDR

The study investigates how stock prices react to public offerings of common stock and convertible debt that are either withdrawn or completed. The authors analyze stock returns from the announcement through withdrawal and issuance to assess the effect of withdrawal decisions. Stock returns are negative from announcement to withdrawal, insignificant from announcement to issuance, positive at withdrawal, negative at issuance, and withdrawals are only significantly negative when the reason is unfavorable market conditions, indicating that managers’ withdrawal decisions reflect recent price behavior and signal firm value to the market.

Abstract

We examine the stock price behavior associated with public offerings of common stock and convertible debt that are withdrawn by the issuing firm, as well as the stock price behavior associated with completed offerings. We find that stock returns are negative in the period from the announcement to the withdrawal, and are statistically insignificant from the announcement to the issuance. Stock returns are positive at the withdrawal and negative at the issuance. Furthermore, the average stock returns associated with withdrawals are significantly different from zero only when the reported reason for the withdrawals is unfavorable market conditions. Our evidence suggests that managers' decisions to withdraw equity offerings depend on recent stock price behavior, and that managers' decisions convey information about firm value to market participants.