Bank Seasoned Equity Offers: Do Voluntary & Involuntary Offers Differ?

Recent research has shown that for industrial and utilities’ seasoned equity offers (SEOs) the offer price discount is informative and has significant price effects. We examine whether the offer price discount for SEOs made by undercapitalized banks is different from those made by banks that were already overcapitalized prior to issue announcement. The former are labeled "involuntary" issues, and the latter "voluntary." Voluntary issues are likely made by opportunistic managers at times when their stock is overvalued. Prior research has argued and provided evidence suggesting that for involuntary issues, such timing discretion may be limited. However, we find no significant differences in the issue-date discount, and in issue-date abnormal returns between the two types of issues. We find that trading volume increases dramatically at the offer date, stays at abnormally high levels over a 60-day post-issue period, and is accompanied by a positive abnormal return in the post-offer period for both types of issues. The post-issue long-run returns are positive for both types of issues. Inconsistent with prior research, we do not find a significant difference even in the announcement date returns of the involuntary and voluntary issues. It appears that the market does not perceive the voluntary and involuntary issuers to be different.