Many studies of seasoned equity offerings (SEOs) have attempted to explain the decline of a company’s stock price after it announces an SEO (see, e.g., Asquith and Mullins (1986) or Masulis and Korwar (1986)). The literature has focused on the asymmetric information about a firm in the equity market as the main explanation. Further, in models such as Myers and Majluf (1984), a crucial assumption is that all investors pay immediate attention to the equity issue announcement.

In a new paper, here, we assume instead that only some investors in the equity market pay attention to the SEO announcement, … Read more