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The Purposes and Outcomes of the Seasoned Equity Offerings of Firms in Taiwan

No.:EP0216

Author:Ya-Hwei Yang and Shu-Hui Chan

Price:Out of print

Publication:2007.07

Abstract:

The development of the capital market has helped solve the funding problems associated with industrial development. Many high-tech industry firms, especially those in the electronics industry, have relied on the capital market to raise funds. Seasoned equity offerings (SEOs) have been the usual method adopted by the listed companies to collect these funds. This study examines the activities of the SEOs of companies listed on the stock exchange and the OTC market in Taiwan. We analyze the behavior of the seasoned equity offerings of firms in 2002, and compare their respective performances both before and after the offerings. There are usually three major purposes of SEOs, in that they relate to capital expenditure, transfer investments, and portfolio operations. Most of the SEOs have been executed as planned. The gross investments have been increasing, but not the net investments. The returns on equities have not increased, either. The reasons for this might be related to the weakening of the macroeconomic environment and the low investment incentives. We divide the listed electronic firms into two groups according to whether they have conducted SEOs or not. Those that have conducted SEOs are found to have better outcomes in terms of capital expenditure and transfer investments than those that have not. The earnings ratios of those that have conducted SEOs are better, but some of the financial indexes are inferior to those of other non-SEO firms. This shows that the financial status of firms with SEOs might be worse, and in need of some improvement.
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