Investor sentiment positively impacts SEO probability, especially on small and young firms.
Our augmented logit model increases the SEO probability estimates substantially.
Investor sentiment positively impacts short-run stock returns around SEO events.
Investor sentiment negatively impacts long-run stock returns subsequent to SEO events.
The effects of sentiment on return patterns of SEOs are stronger for small and young firms.
This article details an investigation of the impact of investor sentiment on the probability of firms conducting seasoned equity offerings (SEOs) and on stock price performance around and subsequent to SEOs. The results show that investor sentiment has a positive impact on SEO probability and that this impact is stronger for small and young firms. Furthermore, firms conducting SEOs during high sentiment periods experience less severe short-run price drops around the issuance yet more severe post-issue long-run underperformance, compared with firms conducting SEOs during low sentiment periods. These effects of investor sentiment on stock price performance are stronger for small, young, and high market-to-book ratio firms.