Role of market timing and market conditions: Evidence from seasoned equity offerings

Abstract

In this paper, we examine the impact of market timing versus market conditions hypotheses on the equity issuance decisions of SEO firms. Indian initial public offerings and secondary equity offerings market provide a perfect setting to test this phenomenon. We examine BSE and NSE listed 970 SEOs during 20-year time period. We use direct as well as indirect measures to examine our hypotheses and the results show that in India, there is evidence for both market timing and market conditions hypotheses for SEOs. Hence, for firms issuing SEOs in India, market timing as well as market conditions are important. The results of negative long run performance of SEOs support firm specific as well as aggregate market timing. Also, market timing by SEOs is strong during hot issue period compared to the cold issue period. Our regulatory regime-wise analysis show that, in the regulatory era there is evidence for market timing and market conditions for SEO issuance, albeit weak whereas for the non-regulatory era firms issue equity to time the market only.