Do firms with an increasing earnings string time seasoned equity offering?
Prior studies have shown mixed results on the timing of firms' equity offering activities. This paper examines whether firms with a string of earnings increases strategically time their seasoned equity offerings (hereafter SEOs) or launch their SEOs in need of future investment capital. Specifically, I investigate whether firms with an increasing earnings string tend to offer their seasoned equities shortly before the string is broken. Using multiple quarters' consecutive earnings series, I find that an increasing earnings string is less likely to be broken in a given period and is broken much later after equity issuance, than in the case of no equity issuance. Further, post-SEO underperformance is observed only for firms with no such string, whereas no such post-SEO underperformance is observed for firms with an increasing earnings string. Finally, firms with an increasing earnings string invest more in capital expenditures and R&D after SEOs than those with no equity issuance, and subsequent to SEOs SEO firms with an increasing earnings string increase investments more than SEO firms with no such string. These results suggest that firms with an increasing earnings pattern do not time their equity offering activities, but offer equities in need of investment capital.