Author(s): Anutchanat Jaroenjitrkam, Thi Mai Lan Nguyen
We examine the motivation why small firms conduct seasoned equity offerings (SEOs) by considering the SEOs of penny stocks in the U.S. market from 1990 to 2016. Our results do not strongly support the market-timing or the life-cycle hypotheses. However, they suggest that manipulation exists around SEOs as firms experiencing positive abnormal accruals are more likely to issue SEOs. A regulation scrutiny shock also negatively affects the probability of penny stock SEOs. We also detect evidence of the “dump and dilute” scheme surrounding the SEOs of penny stocks. Our findings, therefore, represent an alert to both investors and regulators to be more cautious when dealing with penny stocks surrounding their SEOs.