Download or read book Capital Structure, Overinvestment and Seasoned Equity Offerings written by Fangjian Fu and published by . This book was released on 2007 with total page 108 pages. Available in PDF, EPUB and Kindle. Book excerpt: In the second paper, I propose and empirically test the hypothesis that the previously documented poor operating performance following SEOs is caused by managers' overinvestment. I show that, subsequent to the offering, SEO firms tend to invest more heavily than non-issuing control firms with enough financial slack and similar amounts of investment opportunities. More importantly, I find a negative relation between the post-issue investment and operating performance, controlling for investment opportunities and pre-issue performance. The evidence supports an over-investment interpretation as it stands in contrast to the prediction of an optimal investment model, in which firms in anticipation of decreased operating performance should invest less. Consistent with the overinvestment hypothesis, asset productivity decreases and the probability of delisting increases with excess investment. The negative effect of overinvestment is stronger in firms with few investment opportunities.