The Founder certification effect, firm disclosures, and the cost of SEO financing

We investigate the effect of founder control on firms’ financing costs for seasoned equity offerings (SEOs). Firms issuing SEOs are subject to increased information asymmetry and associated agency conflicts. We hypothesize that founder control has a certification effect that mitigates such problems, and consequently, reduces the cost of issuing SEOs. Consistent with our prediction, firms with founder control enjoy higher abnormal announcement returns and lower SEO gross spreads. We also show that founder firms have better post‐SEO operating performance than non‐founder firms. Additionally, we document that the founder certification effect is more salient among firms with poorer pre‐SEO operating performance and those that do not disclose specific use of the SEO proceeds. Finally, we show that founder firms do not increase the frequency of management earnings forecasts as much as non‐founder firms prior to the SEO. Our results are robust to a battery of sensitivity analyses, and our conclusions are consistent with the founder certification effect.

• Publication year

  2023

• Venue

  Journal of Business Finance & Accounting

• Publication date

  2023-09-28

• Fields of study

  Not labeled

• Identifiers
  DOI 10.1111/jbfa.12754
• External record

  Open on Semantic Scholar

• Source metadata

  Semantic Scholar

• No claims are published for this paper.

• No concepts are published for this paper.

• The role of founder decision rights and operating and disclosure mechanisms in firm value creation

  2023cited by this paper
• CREDIT RATINGS AND THE COST OF ISSUING SEASONED EQUITY

  2019cited by this paper
• Do shareholder rights influence the direct costs of issuing seasoned equity?

  2019cited by this paper
• Price Pressure and Overnight Seasoned Equity Offerings

  2018cited by this paper
• Appendix to “ The effects of removing barriers to equity issuance ”

  2017cited by this paper
• Accounting flexibility and managers’ forecast behavior prior to seasoned equity offerings

  2016cited by this paper
• Corporate Governance, Companies’ Disclosure Practices, and Market Transparency: A Cross Country Study

  2016cited by this paper
• Corporate Boards and SEOs: The Effect of Certification and Monitoring

  2016cited by this paper
• Internal Control over Financial Reporting and the Safeguarding of Corporate Resources: Evidence from the Value of Cash Holdings

  2016cited by this paper
• Career Concerns and Management Earnings Guidance

  2016cited by this paper
• Governance of Family Firms

  2015cited by this paper
• Intended Use of Proceeds, Underwriter Quality and the Long-run Performance of SEOs in the UK

  2015cited by this paper
• Institutional Shareholder Investment Horizons and Seasoned Equity Offerings

  2014cited by this paper
• Option implied volatilities and the cost of issuing equity

  2014cited by this paper
• Differences in the Information Environment Prior to Seasoned Equity Offerings under Relaxed Disclosure Regulation

  2014cited by this paper
• The Effect of Governance on Specialist Auditor Choice and Audit Fees in U.S. Family Firms

  2014cited by this paper
• Seasoned Equity Offerings, Corporate Governance, and Investments

  2014cited by this paper
• Industry Concentration and Corporate Disclosure Policy

  2014cited by this paper
• Price informativeness and stock return synchronicity: Evidence from the pricing of seasoned equity offerings

  2014cited by this paper
• The Role of Accounting Conservatism in the Equity Market: Evidence from Seasoned Equity Offerings

  2013cited by this paper
• Underwriting Fees and Shareholder Rights

  2013cited by this paper
• Voluntary Disclosure and Information Asymmetry: Evidence from the 2005 Securities Offering Reform: VOLUNTARY DISCLOSURE AND INFORMATION ASYMMETRY

  2013cited by this paper
• Assessing Methods of Identifying Management Forecasts: CIG vs. Researcher Collected

  2013cited by this paper
• Management Guidance and the Underpricing of Seasoned Equity Offerings*: Management Guidance and SEO Underpricing

  2012cited by this paper
• Are There Monitoring Benefits to Institutional Ownership? Evidence from Seasoned Equity Offerings

  2011cited by this paper
• Accelerated Equity Offers and Firm Quality: Accelerated Equity Offers and Firm Quality

  2011cited by this paper
• Long Term Performance and Choice of SEO Method by UK Firms

  2011cited by this paper
• Corporate Governance When Founders are Directors

  2011cited by this paper
• Overinvestment and the Operating Performance of SEO Firms

  2010cited by this paper
• The Marketing of Seasoned Equity Offerings

  2010cited by this paper
• It Pays to Have Friends

  2009cited by this paper
• Seasoned Equity Offerings: Quality of Accounting Information and Expected Flotation Costs

  2009cited by this paper
• Founders, heirs, and corporate opacity in the United States

  2009cited by this paper
• Intended use of proceeds and the long-run performance of seasoned equity issuers

  2009cited by this paper
• Voluntary disclosures around share repurchases

  2008cited by this paper
• The Rise of Accelerated Seasoned Equity Underwritings

  2008cited by this paper
• Do corporate governance attributes affect adverse selection costs? Evidence from seasoned equity offerings

  2008cited by this paper
• Analyst Coverage and the Cost of Raising Equity Capital: Evidence from Underpricing of Seasoned Equity Offerings

  2008cited by this paper
• Asymptotic and resampling strategies for assessing and comparing indirect effects in multiple mediator models

  2008cited by this paper
• Seasoned Equity Offerings: What Firms Say, Do, and How the Market Reacts

  2008cited by this paper
• Socioemotional Wealth and Business Risks in Family-controlled Firms: Evidence from Spanish Olive Oil Mills

  2007cited by this paper
• Disclosure frequency and earnings management

  2007cited by this paper
• The Revival of Shelf-Registered Corporate Equity Offerings

  2007cited by this paper
• Accounting Information, Disclosure, and the Cost of Capital

  2007cited by this paper
• Corporate Disclosures by Family Firms

  2007cited by this paper
• Insider Trading and Voluntary Disclosures

  2006cited by this paper
• How Do Family Ownership, Control, and Management Affect Firm Value?

  2006cited by this paper
• The Association between Corporate Boards, Audit Committees, and Management Earnings Forecasts: An Empirical Analysis

  2005cited by this paper
• Stock Market Liquidity and the Cost of Issuing Equity

  2005cited by this paper
• PERFORMANCE MATCHED DISCRETIONARY ACCRUAL MEASURES

  2005cited by this paper
• Operating performance following open market share repurchase announcements

  2005cited by this paper
• Executive Compensation Structure and Corporate Equity Financing Decisions

  2005cited by this paper
• Founding-Family Ownership and Firm Performance: Evidence from the S&P 500

  2003cited by this paper
• Exploring the Agency Consequences of Ownership Dispersion Among The Directors of Private Family Firms

  2003cited by this paper
• Voluntary Disclosure of Management Earnings Forecasts in IPO Prospectuses

  2003cited by this paper
• The Determinants of Underpricing for Seasoned Equity Offers

  2003cited by this paper
• Disentangling the Incentive and Entrenchment Effects of Large Shareholdings

  2002cited by this paper
• Information Asymmetry, Corporate Disclosure and the Capital Markets: A Review of the Empirical Disclosure Literature

  2001cited by this paper
• The Development of Family Companies: Management and Ownership Imperatives

  2001cited by this paper
• What is Different About Family Businesses?

  2001cited by this paper
• The Information Effects of Analyst Activity at the Announcement of New Equity Issues

  2000cited by this paper
• Are There Economies of Scale in Underwriting Fees? Evidence of Rising External Financing Costs

  2000cited by this paper
• Voluntary Disclosure and Equity Offerings: Reducing Information Asymmetry or Hyping the Stock?*

  2000cited by this paper
• Theory of the Firm : Managerial Behavior , Agency Costs and Ownership Structure

  2000cited by this paper
• The economics of the family firm

  1999cited by this paper
• Corporate Disclosure Policy and Analyst Behavior

  1998cited by this paper
• The Operating Performance of Firms Conducting Seasoned Equity Offerings

  1997cited by this paper
• Industry costs of equity

  1997cited by this paper
• Higher market valuation of companies with a small board of directors

  1996cited by this paper
• Timing, investment opportunities, managerial discretion, and the security issue decision

  1996cited by this paper
• Causes and Consequences of Earnings Manipulation: An Analysis of Firms Subject to Enforcement Actions by the SEC*

  1996cited by this paper
• SHAREHOLDER LITIGATION AND CORPORATE DISCLOSURES

  1994cited by this paper
• The voluntary inclusion of earnings forecasts in IPO prospectuses

  1992cited by this paper
• Power in top management teams: dimensions, measurement, and validation.

  1992cited by this paper
• What Really Went Wrong At Revco

  1991cited by this paper
• Disclosure, Liquidity, and the Cost of Capital

  1991cited by this paper
• Earnings Management During Import Relief Investigations

  1991cited by this paper
• Seasoned Equity Offerings: An Empirical Investigation

  1986cited by this paper
• Signalling with Dividends, Stock Repurchases, and Equity Issues

  1986cited by this paper
• Large Shareholders and Corporate Control

  1986cited by this paper
• Continuous Auctions and Insider Trading

  1985cited by this paper
• An analysis of the stock price reaction to sudden executive deaths: Implications for the managerial labor market

  1985cited by this paper
• Bid, ask and transaction prices in a specialist market with heterogeneously informed traders

  1985cited by this paper
• A Heteroskedasticity-Consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity

  1980cited by this paper
• Sample selection bias as a specification error

  1979cited by this paper

• Does the textual quality of prospectuses affect gross spread in seasoned equity offerings?

  2024cites this paper