Tenth International Conference On Advances In Economics, Social Science And Human Behaviour Study - ESSHBS 2020
Author(s) : Chayute Phumitanon, NAREERAT TAECHAPIROONTONG
The purpose of this paper is to investigate the optimal fund raising strategy through equity issuance in Thailand. Contrary to the Pecking Order Theory suggesting raising funds from firmâ€™s retained earnings as the first source, following by debt, and lastly issuing equities, there exist more than 2,700 seasoned equity offering (SEO) events during 1999 to 2014 in Thailand; all of data used for this research is acquired from SETSMART database. Moreover, the trend has been increasing substantially in the past 5 years. Key main sectors issuing stocks are property and construction (27%), services (16%), industrials (11%) and financials (10%). Previous researches found a negative stock return from SEO. It is therefore interesting to explore why many firms still issue stocks to raise capital. This research applies event study methodology in identifying the impact of SEO event to the abnormal return comparing with the benchmark, SET return in this case. The empirical analysis shows a matched result with other countries, giving -0.6% abnormal return on the 1-day event window at 1% confidence level, and may drop down to -20.7% within the first year. This is consistent throughout all event windows: short-term (1 day to 1 week), intermediate term (6 months to 1 year), and long-term (> 1 year). Specifically, private placements (PPs) give a less negative return than public offerings (POs) due to the difference in level of information availability. The implication of SEO is that firms may need to raise money via SEOs in order to 1) grab the opportunities when stock prices are high, 2) secure the fund and 3) use to reduce financial distress.