Media Connections and Seasoned Equity Offerings

We examine the effect of managerial social ties with media on seasoned equity offering (SEO). An issuer’s media connection is associated with a greater SEO likelihood, lower announcement returns, and poorer post-SEO operating performance. This is consistent with the argument that firms use their media connections to sell overvalued equity. In cross-sectional analyses, we find that the effect of media connection on announcement returns is more pronounced for firms with higher information asymmetry and greater financial constraints. Further, media connection is positively associated with an issuer’s media coverage and sentiment during the pre-SEO announcement period. Our results are robust to alternate measures, model specifications, and endogeneity concerns. Overall, our findings are consistent with the information manipulation hypothesis, which contends that SEO issuers exploit their connections to media firms as a strategic tool to manipulate SEO outcomes.

Media Connections and Seasoned Equity Offerings Presentation