Announcement effect in seasoned equity offerings in istanbul stock exchange

This research shows that positive abnormal return is observed at the announcement day of seasoned equity offerings in Turkey. Although most of the seasoned equity offerings are private placements in Turkey, few of them are public offerings. Privatization offerings and secondary offerings are also in the context of seasoned equity offering in Turkey. Hertzel and Smith (1992)?s Information Hypothesis, Miller and Rock (1972)?s Cash Flow Signalling Hypothesis and Wasted Investment Hypothesis of Jensen (1986), Eckbo and Masulis (1992)?s Flotation method hypothesis and Modigliani and Miller (1958)?s Leverage Change Hypothesis explain the positive abnormal return in private placements. The firms make public offerings when they are overvalued but they make private placements when they are undervalued. The announcement of private placement makes firm value increase. However issue size affect firm it negatively when the private placements are announced. Furthermore, when market is rising, the announcement of seasoned equity offering signals good news to the market. This shows that windows of opportunity exist in private placement. The agency cost result from the fact that the manager may waste the investment in negative NPV project has some affect on the announcement day abnormal return. In addition the market capitalizes expected flotation cost on announcement day return. Finally, the decrease in leverage due to seasoned equity offering results in decrease in abnormal return at the announcement day also.