A Comparison of the Motivations for and the Information Content of Different Types of Equity Offerings

We examine the choice of equity offering type and the accompanying information content using a sample of 4,708 equity offerings announced between 1980 and 1998. We find evidence that announcements of regular equity offerings involving primary shares convey unfavorable information about future operating performance, while announcements of regular offerings of secondary shares and shelf registrations, if anything, convey favorable information. Further analysis suggests that firms sell equity in regular offerings to take advantage of temporarily high equity values, while firms sell equity in rights offerings or file shelf registrations when their market value is low and their financial situation tight.