Credibility and Multiple SEOs: What Happens When Firms Return to the Capital Market?

Using a sample of firms that conducted multiple SEOs during 1995-2012, we examine whether firms can build credibility for subsequent SEOs by following through on their stated use of proceeds from earlier SEOs. We find that firms that previously state their intention to invest funds in projects and those that make no such statements but nevertheless make investments both have relatively more positive announcement returns around subsequent SEO announcements. Our results suggest that markets are aware of potential agency costs of equity, have a long memory, and update their beliefs as to the likely use of funds raised by firms.