In the study, we examine the long term performance of SEOs firms with regard to different dividend policy. Many previous studies show the long term return of seasoned equity offerings issuers and dividend payers or not. They found that issuing SEOs and cutting dividend would lead to the significant long term negative returns4. But they seldom combine the effect of SEOs and dividend policy to see the long term return. We use 1331 SEOs issuing during from 1987 to 2002 collected from Securities Data Corporation to see the outcome.
The main conclusions are as follow:
1. The Dividend-paying firms have larger firm size, higher return on asset, higher book to market ratio, and longer operating year.
2. The Dividend-paying firms have less long term negative returns than the Non-dividend-paying firms.
3. The firms which continue paying dividend after SEOs announcement would have the best long term performance regardless of using BHARs or calendar-time Fama and French three-factor model portfolio regressions. The second is the Non-dividend-paying firms. The worst is the firm which pay dividend around SEOs announcement and cut after SEOs announcement.
4. The firms who continue paying dividend for longer time before SEOs announcement would get less long term negative returns. The steadier dividend policy gets the better long term return.
This finding is consistent with asymmetric information and signal theory that dividend does imply some information and the long term return would be affected.
4 Michaely, Richard, and Thaler (1995) proofed that dividend omissions would cause long term negative return. Loughran and Ritter (1995), Katherine and Affleck (1995), Brav, Geczy, and Paul (2000), Mitchell and Stafford (2000) proofed that issuing seasoned equity offering would long term negative return.
23
The result admits the signaling model presumption that dividend s convey information which can reduce the valuation uncertainty. Firms who execute steady dividend policy would have less asymmetric information. Consequently, this kind of firms would receive less negative returns by issuing SEOs.
24
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27
Table I
Distribution of Seasoned Equity Offerings by Year and Industry
The sample consists of 1333 SEOs events which occur during the period between 1987 and 2002 that are selected from Securities Data Company‟s New Issues Database. The share code in CRSP must be 10 or 11 means the sample excludes equity offerings by closed-end funds, real estate investment trusts (REITs), unit investment trusts, and American depositary receipt (ADRs). Panel A is the time distribution of the sample by event year. Panel B reports the SIC distribution of the sample by two-digit SIC code.
Panel A. Time Distribution
Fiscal Year End Number Percentage(%)
1987 17 1.28
1988 42 3.16
1989 37 2.78
1990 77 5.79
1991 72 5.42
1992 100 7.52
1993 117 8.8
1994 105 7.9
1995 156 11.74
1996 140 10.53
1997 119 8.95
1998 93 7
1999 128 9.63
2000 60 4.51
2001 61 4.59
2002 9 0.68
total 1333 100%
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Panel B. SIC Distribution
Industry Two-digit SIC codes Number Percentage (%)
agriculture, forestry, and fishing 01-09, 20 17 1.28
mining 10-14 34 2.56
construction 15, 16, 17 12 0.9
manufacturing 29, 30, 31, 32,33, 34 57 4.29
wholesale trade 50, 51 70 5.27
retail trade 52-59 126 9.48
services 70-79 107 8.05
Health services 80 55 4.14
communication 48 54 4.06
Scientific Instruments 38 99 7.45
Transportation 37, 39, 40-42,44 ,45 66 4.97
Electric and electronic equipment 36 167 12.57
Paper and Paper Products 24, 25, 26, 27 27 2.03
Computer Hardware & software 35, 73 265 19.94
chemical products 28 146 10.99
the others 22, 23, 46, 47 14 1.53
total 1333 100
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Table II
Variable Characteristic of SEOs Firm
The table shows the descriptive statistics of the SEOs firms. The sample consists of 1333 SEOs events which occur during the period between 1987 and 2002 that are selected from Securities Data Company‟s New Issues Database. Dividend-paying firms are defined as that pay cash dividend during the three quarters prior and current quarter on the seasonal equity offerings announcement, and the others are non-dividend payers. Panel A reports summary statistic of all sample events. Panel B is the summary statistic of dividend-paying firms, and Panel C is the summary statistic of non-dividend-paying firms. CAPX/TA is defined as capital expenditure divide into total asset. DLTT/TA is defined as long term debt divide into total asset. MV is defined as (total asset – book value of equity + market value of equity). BMK is defined as (book value of equity / market value of equity). DTA is defined as (total debt / total asset). TA is defined as total asset. AGE is defined as the firm‟s operating years.
Panel A. All SEOs Firm
Mean Standard Dev. Q1 Median Q3
CAPX/TA(%) 8.2985 9.8053 2.7756 5.3309 9.7837
DLTT/TA(%) 17.1254 22.814 0.2487 7.2507 28.2704
ROA(%) -3.8261 26.5842 -4.543 4.234 8.897
MV($ milloin) 1027.84 6363.5992 110.3149 232.6005 671.2586
BMK 0.3011 0.3916 0.1445 0.261 0.4126
DTA(%) 20.8894 24.1798 1.171 13.094 33.274
TA($ million) 382.076 1504.0632 36.404 82.045 236.906
logMV 2.4439 0.6043 2.0426 2.3666 2.8269
AGE 2.0539 2.3705 0 1 3
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Panel B. Dividend-Paying Firms
Mean Standard Dev. Q1 Median Q3
CAPX/TA(%) 8.167 9.8607 2.9518 5.4488 9.9266
DLTT/TA(%) 22.9829 18.8159 8.0387 21.641 34.2432
ROA(%) 7.1186 5.3915 3.812 6.4065 9.839
MV($ millions) 1903.198 6909.2936 239.2845 533.0445 1336.457
BMK 0.4518 0.3026 0.2689 0.4063 0.5871
DTA(%) 27.8475 19.4089 12.947 27.605 39.692
TA($ millions) 997.0705 2981.2505 124.355 318.4075 835.781
logMV 2.7714 0.5774 2.3789 2.7267 3.126
AGE 3.162 2.5561 1 3 5
Panel C. Non-Dividend-Paying Firms
Mean Standard Dev. Q1 Median Q3
CAPX/TA(%) 8.3142 9.8028 2.7689 5.3201 9.7706
DLTT/TA(%) 16.4283 23.1523 0.1443 5.9221 25.8643
ROA(%) -5.1289 27.7759 -7.436 3.889 8.703
MV($ millions) 923.6444 6290.5058 102.8938 208.5375 599.9948
BMK 0.2831 0.3972 0.1364 0.2476 0.3903
DTA(%) 20.0664 24.5599 0.916 11.38 31.331
TA($ millions) 308.8747 1195.8035 33.392 71.071 185.62
logMV 2.405 0.5958 2.0124 2.3192 2.7781
AGE 1.922 2.3135 0 1 3
31
Table III
Five Year Buy-and-Hold Abnormal Returns for All SEOs Firms
The table shows the buy-and-hold abnormal returns (BHARs) of all SEOs firms during from 1987 to 2002. The five-year abnormal returns are calculated by three different benchmarks; one is size and B/M ratio matching firm, one is CRSP equally-weighted Index, and the other is CRSP value-weighted Index.
We use the Cross-sectional t-statistic and Skewness-adjusted t-statistic to test the significance of the mean value of BHARs. T-statistics are reported with ***, **, and * represent significance at the 1%, 5%, and 10% level each.
1 year 2 year 3 year 4 year 5 year
A. based on size and B/M ratio matching firm
Abnormal return (Mean) -0.28% -5.32% -6.17% -11.60% -11.57%
Cross-sectional t-stat -0.185 -2.298* -0.984 -2.637** -2.383**
Skewness-adjusted t-stat -0.186 -2.049* -0.777 -2.135* -2.357**
B. based on CRSP equally-weighted Index
Abnormal return (Mean) -2.99% -16.70% -23.37% -31.55% -30.06%
Cross-sectional t-stat -1.377 -5.778*** -6.078*** -7.013*** -4.741***
Skewness-adjusted t-stat -1.314 -4.733*** -4.461*** -5.081*** -3.513***
C. based on CRSP value-weighted Index
Abnormal return (Mean) -3.41% -16.52% -22.56% -26.02% -19.11%
Cross-sectional t-stat -1.55 -5.675*** -5.823*** -5.734*** -3.027**
Skewness-adjusted t-stat -1.469 -4.721*** -4.434*** -4.515*** -2.525*
32
Table IV
Calendar-Time Fama and French Three-Factor Model Portfolio Regression for All SEOs Firms
This table shows the portfolio abnormal returns for all SEOs firms which are based on the three-factor model of Fama and French (1993). The equation is as follow:
Where dependent variable, Rpt, is the equally-weighted event portfolio return. Rft is the return on
one-month Treasury bills in month t, is the return on a value-weighted market index in month t, is the difference in the returns of a portfolio of the small and big stocks in months t, is
the difference in the returns of a portfolio of high book-to-market stocks and low book-to-market stocks in the month t. Newey West t-statistics are reported in parentheses. ***, **, and * represent significance at the 1%, 5%, and 10% level each.
Holding Period Intercept (α) RMRF SMB HML R-squared
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Table V
Five Year Buy-and-Hold Abnormal Returns for Dividend-Paying Firms and non-Dividend-Paying Firms
The table shows the buy-and-hold abnormal returns (BHAR) of dividend-paying firms and non-dividend-paying firms during from 1987 to 2002. Panel A presents the dividend-paying firms, and Panel B presents the non-dividend-paying firms. The five-year abnormal returns are calculated by three different benchmarks; one is size and B/M ratio matching firm, one is CRSP equally-weighted portfolio, and the other is CRSP value-weighted portfolio. We use the Cross-sectional t-statistic and Skewness-adjusted t-statistic to test the significance of the mean value of BHARs. T-statistics are reported with ***, **, and * represent significance at the 1%, 5%, and 10% level each.
Panel A. Dividend-Paying Firms
1 year 2 year 3 year 4 year 5 year
A. based on size and B/M ratio matching firm
Abnormal return (Mean) -0.21% -2.59% 2.29% -4.12% 4.60%
Cross-sectional t-stat -0.088 -0.742 0.395 -0.54 0.287 Skewness-adjusted t-stat -0.088 -0.726 0.41 -0.528 0.308 B. based on CRSP equally-weighted portfolio
Abnormal return (Mean) 0.90% -5.35% -16.53% -28.96% -35.13%
Cross-sectional t-stat 0.24 -0.899 -1.823* -3.029** -2.824**
Skewness-adjusted t-stat 0.242 -0.859 -1.452 -2.436** -2.167**
C. based on CRSP value-weighted portfolio
Abnormal return (Mean) 1.30% -2.58% -11.50% -21.53% -23.62%
Cross-sectional t-stat 0.331 -0.415 -1.228 -2.133** -1.814*
Skewness-adjusted t-stat 0.334 -0.408 -1.077 -1.883* -1.574*
Panel B. Non-Dividend-Paying Firms
1 year 2 year 3 year 4 year 5 year A. based on size and B/M ratio matching firm
Abnormal return (Mean) -0.19% -6.43% -7.56% -13.07% -12.99%
Cross-sectional t-stat -0.121 -2.736** -1.204 -2.958** -2.669**
Skewness-adjusted t-stat -0.121 -2.395** -0.9 -2.337** -2.637**
B. based on CRSP equally-weighted Index
Abnormal return (Mean) -3.45% -18.05% -24.19% -31.86% -29.46%
Cross-sectional t-stat -1.446 -5.723*** -5.806*** -6.494*** -4.244***
Skewness-adjusted t-stat -1.373 -4.633*** -4.244*** -4.731*** -3.201**
C. based on CRSP value-weighted Index
Abnormal return (Mean) -3.97% -18.18% -23.88% -26.55% -18.57%
Cross-sectional t-stat -1.643* -5.736*** -5.700*** -5.380*** -2.693**
Skewness-adjusted t-stat -1.547* -4.693*** -4.287*** -4.232*** -2.271**
34
Table VI
Calendar-Time Fama and French Three-Factor Model Portfolio Regression for Dividend-Paying Firms and non-Dividend-Paying Firms
This table shows the portfolio abnormal returns for the dividend-paying firms and the non-dividend-paying firms which are based on the three-factor model of Fama
and French (1993). The equation is , Where dependent variable, Rpt, is the equally-weighted event portfolio return. Rft is the return on one-month Treasury bills in month t, is the return on a value-weighted market index in month t, is the difference in the returns of a portfolio of the small and big stocks in months t, is the difference in the returns of a portfolio of high book-to-market stocks and low book-to-market stocks in the month t. Newey West t-statistics are reported in parentheses. ***, **, and * represent significance at the 1%, 5%, and 10% level each.
Dividend-Paying Firms Non-Dividend-Paying Firms
35
Table VII
Five Year Buy-and-Hold Abnormal Returns for Keeping-Dividend-Paying Firms and Non-Keeping-Dividend-Paying Firms after SEOs
The table shows the buy-and-hold abnormal returns (BHARs) of keeping-dividend-paying firms and non-keeping-dividend-paying firm during from 1987 to 2002. Keeping-dividend-paying firms are defined as firms that pay cash dividend during the three quarters prior or on the seasonal equity offerings announcement, and keep paying dividend after SEOs. Non-keeping-dividend-paying firms are that pay dividend at SEOs period and cease paying dividend after SEOs. The five-year abnormal returns are calculated by three different benchmarks; one is size and B/M ratio matching firm, one is CRSP equally-weighted portfolio, and the other is CRSP value-weighted portfolio. We use the cross-sectional t-statistic and skewness-adjusted t-statistic to test the significance of the mean value of BHARs. T-statistics are reported with ***, **, and * represent significance at the 1%, 5%, and 10%
level each.
Panel A. Keeping-Dividend-Paying Firms
1 year 2 year 3 year 4 year 5 year
A. based on size and B/M ratio matching firm
Abnormal return (Mean) 1.57% 3.40% 10.33% 2.19% 16.70%
Cross-sectional t-stat 0.558 0.853 1.468 0.233 0.818 Skewness-adjusted t-stat 0.569 0.883 1.679* 0.236 0.983 B. based on CRSP equally-weighted Index
Abnormal return (Mean) 2.91% 4.18% -2.80% -13.99% -18.56%
Cross-sectional t-stat 0.684 0.581 -0.252 -1.213 -1.225 Skewness-adjusted t-stat 0.702 0.602 -0.245 -1.106 -1.083 C. based on CRSP value-weighted Index
Abnormal return (Mean) 3.24% 6.65% 0.54% -8.29% -7.69%
Cross-sectional t-stat 0.729 0.885 0.047 -0.671 -0.482 Skewness-adjusted t-stat 0.749 0.925 0.047 -0.646 -0.465
36
Panel B. Non-Keeping-Dividend-Paying Firms
1 year 2 year 3 year 4 year 5 year A. based on size and B/M ratio matching firm
Abnormal return (Mean) -6.33% -23.19% -25.34% -25.81% -36.96%
Cross-sectional t-stat -1.428* -3.858*** -3.667*** -2.899** -4.269***
Skewness-adjusted t-stat -1.347 -3.560*** -2.830** -2.110** -2.371**
B. based on CRSP equally-weighted Index
Abnormal return (Mean) -6.01% -38.10% -63.71% -80.45% -92.07%
Cross-sectional t-stat -0.742 -5.576*** -7.428*** -7.108*** -6.330***
Skewness-adjusted t-stat -0.723 -5.393*** -7.057*** -5.817*** -6.107***
C. based on CRSP value-weighted Index
Abnormal return (Mean) -5.39% -34.33% -52.89% -67.04% -78.40%
Cross-sectional t-stat -0.644 -4.543*** -6.077*** -5.990*** -5.228***
Skewness-adjusted t-stat -0.63 -4.871*** -6.420*** -6.170*** -5.503***
37
Table VIII
Calendar-Time Fama and French Three-Factor Model Portfolio Regression for Keeping-Dividend-Paying Firms and Non-Keeping-Dividend-Paying Firms after SEOs
This table shows the portfolio abnormal returns for keeping-dividend-paying firms and non-keeping-dividend-paying firms during from 1987 to 2002. which are based on the three-factor model of Fama and French (1993). The equation is , Where dependent variable, Rpt, is the equally-weighted event portfolio return. Rft is the return on one-month Treasury bills in month t, is the return on a value-weighted market index in month t, is the difference in the returns of a portfolio of the small and big stocks in months t, is the difference in the returns of a portfolio of high book-to-market stocks and low book-to-market stocks in the month t.. Newey West t-statistics are reported in parentheses. ***, **, and * represent significance at the 1%, 5%, and 10% level each.
Keeping-dividend-paying firms Non-Keep-Paying Dividend Firms
38
Table IX
Ordinary Least Squares Regressions of Abnormal Stock Returns to Keeping-Dividend-Paying Firms and Non-Keeping-Dividend-Paying Firms after
SEOs
The table shows the ordinary least squares regressions result of abnormal returns on
keeping-dividend-paying firms and non-keeping-dividend-paying firms after the five year over the issue year. The dependent variable is the buy-and-hold abnormal returns which calculate by the CRSP equally-weighted benchmark. The control variables include the issuer‟s operating years (AGE), total debt to total asset (DTA), book to market ratio(BMK), capital expenditure to total asset(CAPX/TA), return on asset (ROA), logged market value of asset (logMV), and KDIV which is a 0/1 indicator variable equal to 1 for keeping-dividend-paying firms. White‟s (1980) heteroskedasticity consistent t-statistics are reported in parentheses. ***, **, and * represent significance at the 1%, 5%, and 10%
level.
1 year 2 year 3 year 4 year 5 year
Intercept -0.97522 1.40253 0.3346 -1.3183 -0.50387 (-0.459) (0.727) (0.296) (-0.724) (-0.247) CAPX/TA 0.04179 0.02078 -0.00905 0.00302 -0.00702
(1.263) (0.942) (-0.983) (0.109) (-0.325) ROA -0.00091818 -0.07981 -0.03111 -0.01792 -0.02626
(-0.016) (-1.099) (-0.972) (-0.366) (-0.546)
39
Table X
Five Year Buy-and-Hold Abnormal Returns for Different Definition of Dividend-Paying Firms
The table shows the buy-and-hold abnormal returns (BHARs) of dividend-paying firms of different definition. Panel A is the definition of paying dividend for one year before SEOs announcement, Panel B is the definition of paying dividend for two years before SEOs announcement, and Panel C is the definition of paying dividend for three years before SEOs announcement. The five-year abnormal returns are calculated by three different benchmarks; one is size and B/M ratio matching firm, one is CRSP equally-weighted Index, and the other is CRSP value-weighted Index. We use the cross-sectional t-statistic and skewness-adjusted t-statistic to test the significance of the mean value of BHARs. T-statistics are reported with ***, **, and * represent significance at the 1%, 5%, and 10%
level each.
Panel A. Dividend-Paying Firms for One Year
1 year 2 year 3 year 4 year 5 year
A. based on size and B/M ratio matching firm
Abnormal return (Mean) -0.21% -2.59% 2.29% -4.12% 4.60%
Cross-sectional t-stat -0.088 -0.742 0.395 -0.54 0.287 Skewness-adjusted t-stat -0.088 -0.726 0.41 -0.528 0.308 B. based on CRSP equally-weighted portfolio
Abnormal return (Mean) 0.90% -5.35% -16.53% -28.96% -35.13%
Cross-sectional t-stat 0.24 -0.899 -1.823* -3.029** -2.824**
Skewness-adjusted t-stat 0.242 -0.859 -1.452 -2.436** -2.167**
C. based on CRSP value-weighted portfolio
Abnormal return (Mean) 1.30% -2.58% -11.50% -21.53% -23.62%
Cross-sectional t-stat 0.331 -0.415 -1.228 -2.133** -1.814*
Skewness-adjusted t-stat 0.334 -0.408 -1.077 -1.883* -1.574*
40
Panel B. Dividend-Paying Firms for Two Years
1 year 2 year 3 year 4 year 5 year
A. based on size and B/M ratio matching firm
Abnormal return (Mean) 0.69% 2.03% 10.14% -0.52% 18.26%
Cross-sectional t-stat 0.246 0.484 1.195 -0.046 0.687 Skewness-adjusted t-stat 0.25 0.497 1.372 -0.046 0.812 B. based on CRSP equally-weighted Index
Abnormal return (Mean) 1.31% 0.24% -11.88% -21.72% -25.39%
Cross-sectional t-stat 0.29 0.033 -1.457 -2.109** -1.737*
Skewness-adjusted t-stat 0.294 0.033 -1.399 -1.908* -1.497*
C. based on CRSP value-weighted Index
Abnormal return (Mean) 1.78% 3.00% -8.54% -14.47% -11.54%
Cross-sectional t-stat 0.372 0.391 -0.926 -1.257 -0.712 Skewness-adjusted t-stat 0.379 0.396 -0.908 -1.213 -0.672
Panel C. Dividend-Paying Firms for Three Years
1 year 2 year 3 year 4 year 5 year A. based on size and B/M ratio matching firm
Abnormal return (Mean) 1.03% 0.88% 9.47% -4.26% 0.40%
Cross-sectional t-stat 0.321 0.197 1.163 -0.393 0.027 Skewness-adjusted t-stat 0.328 0.199 1.313 -0.403 0.027 B. based on CRSP equally-weighted Index
Abnormal return (Mean) 1.13% 4.19% -5.44% -16.48% -22.31%
Cross-sectional t-stat 0.235 0.511 -0.604 -1.449 -1.482 Skewness-adjusted t-stat 0.238 0.522 -0.592 -1.326 -1.294 C. based on CRSP value-weighted Index
Abnormal return (Mean) 3.34% 9.86% 1.61% -5.00% -4.11%
Cross-sectional t-stat 0.64 1.107 0.161 -0.396 -0.246 Skewness-adjusted t-stat 0.66 1.149 0.162 -0.39 -0.241