The wealth effects of commercial bank securities issuances announcement

Banks are often excluded in corporate finance research mainly because of the regulatory concerns. Compares to non-bank firms, banks are heavily regulated due to its special economic role of money and the uncertainty. Heavy regulation on banks could reduce the information asymmetry between the managers and investor by limiting the behaviour of banks at the time of the Seasoned Equity Offering (SEO), and by increasing the incentive for banks to avoid excessive risk-taking. Therefore, the market may be less likely to assume that bank issued securities signal information that the bank is overvalued compared to their non-bank counterparts. The objective of this thesis is therefore to examine commercial banks issued securities announcement effect. Three interrelated research questions are addressed in this thesis: 1) What is the difference in convertible bond announcement effect between banks and non-banks firm? 2) What is the difference in SEO announcement effect between banks and non-banks? 3) How do the stringency levels of bank regulation impact on the announcement effects of bank issued SEO? By using the U.S. convertible bond and SEO data from 1982 to 2012, I find that the bank issued a convertible bond and SEO announcement experience higher cumulative abnormal return than non-bank. This is consistent with the view that bank regulation reveals positive information about banks. Since banks are heavily regulated, the market is less likely to assume that the issuance of the convertible bond and SEO by banks signals information that is overvalued. These results are robust after controlling for a number of firm-, issue-, and market-specific characteristics. These results are robust by considering the different categories of non-bank industries by undertaking tests in relation to the differences in the CARS upon convertible bond/ SEO across industries, as well as the unbalanced sample between banks and non-banks by using the matched sample analysis. However, the relation between the stringency level of bank regulation and bank issued securities announcement effect may be nonlinear. As hypothesised, I find that bank regulation has an inverted U-shaped relation with the announcement effect of bank SEO by using the SEO data across 21 countries from 2001 to 2012. Under a less bank regulation environment, the market reacts more positively to the bank SEO announcement for an increase in the level of bank regulation. However, the bank SEO announcement effects become more negative if the bank regulation becomes too stringent. This inverted U-shaped relationship is robust after I use the exogenous cross-country, cross-year variation in the timing of the Basel II adoption as the instrument to assess the causal impact of bank regulation on SEO announcement effects. However, the stringency of regulation does not have a significant impact on the announcement effects of involuntary bank equity issuance.