The use of shelf offerings to raise capital in the U.S. market

This thesis examines the use of shelf offerings to raise equity capital in the U.S. market. Shelf offerings have recently become the key method to offer primary equity as the capital raised via shelf offerings now accounts for 80% of the value of U.S. seasoned equity offerings (SEOs). Notwithstanding their importance, shelf offerings have attracted little attention in the finance literature. The first essay examines the drivers of the gradual increase in the use of shelf offerings and consequent decrease in the volume of traditional SEOs. The primary proceeds from shelf offerings have increased more than five times over the last decade: from $3.4 billion in 1997 to $18.9 billion in 2007. We argue that the shift in SEO issue method to shelf offerings is due to the decreasing level of information asymmetry of equity issuers over time. The results suggest that increased institutional ownership rather than other measures of information asymmetry determines the change in the choice of issue method over time.The second essay uses shelf offerings to analyze how firms select the type of security to issue conditional on a limited set of possible choices nominated by the firm in a shelf registration statement. We use debt and equity offerings issued under allocated and universal shelf registration statements in the U.S. market and artificial firm-year observations where firms could sell securities but did not. The analysis of conditional security choice finds support for the pecking order hypothesis, trade-off theory, and market timing. This suggests that a firm's external financing behavior has not changed due to the adoption of Rule 415 providing for shelf offerings. The third paper examines the intra-industry transfer of information inferred from the announcements of shelf registrations and offerings. The results show that intra-industry effects exist. Specifically, the announcement of a shelf registration conveys new information that has shareholder wealth implications to investors about rival firms. The stock price of rival firms is significantly positively affected during a bull market and significantly negatively impacted when the market is bearish. In contrast, we find that a shelf offering is a firm specific event.