Institutional Shareholder Investment Horizons and Seasoned Equity Offerings

Firms with more short-term institutional shareholders experience significantly more negative abnormal returns at the announcement of seasoned equity offerings. This effect is strong for primary offerings (only firms receive proceeds), but is not present for secondary offerings (firms do not receive any proceeds). Furthermore, a shorter institutional shareholder investment horizon predicts poorer postissue abnormal operating performance and the negative effect of a shorter shareholder horizon is mitigated by higher managerial ownership. My results are consistent with the argument that long-term shareholders more carefully monitor managerial activities and prevent misuse of the cash flow provided by equity issues.