The short-run performance of equity issues in South Africa: Bad timing or a last resort?

Understanding the stock market’s reaction to secondary equity offerings (SEOs) is vital for managers who are commonly tasked with deciding on how to finance their firm’s operations. This study investigated the short-run performance of firms conducting equity issuance on the Johannesburg Stock Exchange (JSE) over the period 1998–2015 by exploring both rational and behavioural models in predicting SEO behaviour. Event-study analysis reveals that the market generally reacts negatively to the announcement of SEOs with a statistically significant average two-day cumulative abnormal return of -2.6%. We also found that the probability of a firm conducting a SEO is significantly negatively related to the number of years listed and the future share return. Although it would make sense that more corporate activity takes place during periods of high investor sentiment, there is no significant evidence that firms conducting SEOs are attempting to time the market.