The Sec's Review of the Registration Statement and Stock Price Movements During the Issuance Process
Posted: 22 Aug 1998
The SEC was established to protect investors by providing "full and fair" disclosure of information regarding publicly offered securities through regulatory procedures. Despite the potential importance of the SEC's role, little research has been performed on the effects of the SEC's monitoring in the capital market. A recent concern about mandatory disclosures by the SEC and by various Securities Acts raises questions of whether the SEC's review reveals additional information.Since the SEC tries to identify any materially untrue, incomplete or misleading information in the registration statement, questions raised by the SEC during the review process pertain to deficiencies in the original registration statement. An amendment is likely to contain unfavorable news because firms have little reason to omit favorable news in the registration statement. Any amendment restarts the 20-day period, which delays the effective date of the registration statement. It is expected that late offerings are associated with more unfavorable news because offerings are likely to be delayed by amendments.This paper documents negative cumulative excess returns during the waiting period and shows that the stock price drop during the waiting period is an increasing function of the length of the waiting period. This paper also reports that amendment date excess returns are significantly more negative for the second and third amendments than for the first. There is a significant positive correlation between the number of amendments and the length of the waiting period. Cumulative excess returns during the waiting period are more negative for offerings with two or more amendments than for offerings with zero or one amendment. The results are robust against variables that may affect the stock prices during the issuance process.
JEL Classification: G12, G18, M41
Suggested Citation: Suggested Citation