Scholars of the Faculty of Business Administration of the University of Macau (UM), Dr CHEUNG Ming Yan, Dr TAM Hon Keung, and Dr Scott FUNG of California State University, have recently been awarded the SWFA Best Paper in Investments Award in the 2009 Southwestern Finance Association (SWFA) Conference with their co-authored microstructure paper titled “Does Market Microstructure Matter for Corporate Finance? Theory and Evidence on Seasoned Equity Offerings Decisions”. The award indicates that the potential of UM scholars as their research has been internationally acknowledged.
This paper presents new evidences that market microstructure has important economic impacts on corporate financing decisions. In a model of public trading, both market liquidity and managerial incentive affect equity offering decisions. Based on a sample of US firms from 1980 to 2002, this paper presents three sets of new findings. First, market illiquidity has a significant negative impact on seasoned equity offering (SEO) decisions; such an impact is larger for firms with less informative stock prices, firms with low financing constraints, no analysts coverage and firms traded in NYSE. The treatment-effect model shows that the future (one to twelve months) stock price informativeness of NYSE firms increases significantly with the probability of SEO, after controlling market liquidity and firm fundamentals. Second, market liquidity increases the size and frequency of SEOs. A decrease of pre-issue price impact by one standard deviation imply an increase of SEO proceed by 2.2 million dollar more for firms with least informative equity prices. Third, incentive compensations induce managers to attend to public trading and market illiquidity in SEO size decision. Market illiquidity has a larger impact on SEO size decision for managers with stock options compensations over total compensation over 10%.
Jointly organized by Southwestern Finance Association (SWFA) and Federation of Business Disciplines, the 48th Annual Meeting of the Southwestern Finance Association Conference will be held in Oklahoma City, USA, in February 2009. This conference is of high international reputation. Research papers accepted by the conference resulting from selection process through external reviews and are all selected by the judges strictly. The Journal of Financial Research, a quarterly academic journal for scholarly research in investment, capital markets and institutions, corporate finance and governance, is partly sponsored by the Southwestern Finance Association. The Journal of Financial Research is recognized as a leading finance journal in this wide range of research fields.
