Information regarding firm value and future cash flows is signalled by management's capital structure decisions to various participants in the capital market. This study examines the impact of announcements of secondary equity offers (SEOs) and their subsequent withdrawal on stock returns, as well as revisions of analysts' forecasts of future earnings. Specifically, management's justification for SEOs and their stated reasons for the cancellations are analysed on the basis of the market's response to these events. In addition, stock price reactions and analysts' forecast revisions to withdrawal announcements are compared for shelf-registered and traditionally registered SEOs in the United States.
This study finds that stock returns, for non-shelf offers are negative at the SEO announcement and positive at the withdrawal. Share price reactions vary in degree depending on the reasons cited for the equity issue and subsequent withdrawal. Similar negative stock returns are observed at the SEO announcement, irrespective of the registration method employed. However, stock returns around withdrawals of shelf offers are insignificant, indicating that, on average, market participants do not react to these announcements. The evidence also suggests that analysts do not react, in terms of their earnings forecast revisions, to the withdrawal announcements of both shelf and non-shelf registered equity offers.