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CEO compensation and the seasoned equity offering decision

Managerial and decision economics, 2006-07, Vol.27 (5), p.363-378 [Peer Reviewed Journal]

Copyright 2006 John Wiley & Sons, Ltd. ;Copyright © 2006 John Wiley & Sons, Ltd. ;Copyright Wiley Periodicals Inc. Jul/Aug 2006 ;ISSN: 0143-6570 ;EISSN: 1099-1468 ;DOI: 10.1002/mde.1268 ;CODEN: MDECDE

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Title:
CEO compensation and the seasoned equity offering decision
Author: F. Brazel, Joseph ; Webb, Elizabeth
Subjects: Business management ; Business studies ; Chief executive officers ; Compensation ; Data analysis ; Earnings ; Economic performance ; Equity ; Executive compensation ; Financial leverage ; Financial management ; Financial reporting ; Information asymmetry ; Investments ; Investors ; Options on stocks ; Seasoned equity offerings ; Shareholders ; Stock options ; Stock prices ; Studies ; U.S.A
Is Part Of: Managerial and decision economics, 2006-07, Vol.27 (5), p.363-378
Description: Empirical research on seasoned equity offerings indicates that the decision to make an SEO typically engenders a decline in firm value, as investors interpret this decision as a signal of poor financial health or that the stock is overpriced. Here, we add to the literature by analyzing the short-term market reaction to SEO announcements and the chief executive officer's link to firm performance (i.e. the proportion of CEO equity-based compensation). Results support the hypothesis that investors are more likely to view the announcement of an SEO as a last resort source of capital when the proportion of CEO equity-based compensation is high. In such cases of high equity-based compensation, our findings indicate that the SEO announcement provides an incremental signal of financial distress above that provided by financial statements. We also find this relationship (last resort signal) to be stronger when large information asymmetries exist between management and investors. Thus, managers should consider the ramifications of executive compensation structure when considering whether to make an SEO.
Publisher: Chichester, UK: John Wiley & Sons, Ltd
Language: English
Identifier: ISSN: 0143-6570
EISSN: 1099-1468
DOI: 10.1002/mde.1268
CODEN: MDECDE
Source: Alma/SFX Local Collection
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CEO compensation and the seasoned equity offering decision

Copyright 2006 John Wiley & Sons, Ltd. ;Copyright © 2006 John Wiley & Sons, Ltd. ;Copyright Wiley Periodicals Inc. Jul/Aug 2006 ;ISSN: 0143-6570 ;EISSN: 1099-1468 ;DOI: 10.1002/mde.1268 ;CODEN: MDECDE

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