TitlePrivate Debt, Unused Credit Lines, and Seasoned Equity Offerings
Publication TypeJournal Articles
Year of Publication2011
AuthorsLiu, Y, Yang, J
JournalQuarterly Review of Economics and Finance
Volume51
Issue4
Pagination376-388
Date Published2011
KeywordsDoctoral Program, Finance, MBA
Abstract

We study a sample of SEOs to examine the impact of private debt and unused credit lines on SEO underpricing and long-run stock and operating performance. We do not find significant effects of private debt financing on SEO underpricing and long-run stock underperformance. However, firms with more bank debt and unused lines of credit exhibit significantly better pre-issue operating performance. Changes in operating performance from the pre-issue year to the post-issue period are negatively related to thesize of unused credit lines. Capital spending decreases with the size of unused credit lines in the year prior to SEOs, but increases following SEOs. Our overall evidence suggests that the post-issue operating performance we observed may be a result of overinvestment, which is enhanced by unused credit lines.

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