At The Market (ATM) Offerings

Transcription

1 At The Market (ATM) Offerings Matthew Billett Ioannis Floros Jon Garfinkel Discussion by: Matthew Gustafson Research Questions Descriptive paper investigating ATM offerings What is an ATM? Who performs ATMs vs. SEOs? What are the market returns surrounding ATMs? Market reaction to announcement Pre announcement return patterns How are ATMs used? 1

2 Background: SEO Issuance Process Background: ATM Offerings ATMs are a new way to use shelf registrations Announce the possibility of selling shares on the open market Can be sold slowly, quickly, or not at all Underwriter does their best to sell shares Not firm commitment ATMs are similar to reverse share repurchase programs 2

3 ATM Popularity Most of the analysis uses the non REIT, non regulated sample Understandable since these are most comparable to most SEO studies Worrisome since popularity of ATMS is concentrated in REITs/financials Who Performs ATMs vs. SEOs? Smaller firms Less Growth Larger Spreads More Turnover More Volatility More Dividends Less Stock Runup Less Revenue Less Cash 3

4 Economic Interpretation of Results Authors argue: The lack of certification suggests ATM firms either perceive little need for, or would face higher costs of certification. Consistent with the latter, we find that ATM issuers tend to be smaller with more R&D, and lower sales and profitability ratios (Intro, p. 4) Counterpoint: By excluding the REITs/regulated firms they are dropping the biggest piece of evidence in favor of the first argument. It seems to me that both channels are operating Economic Interpretation of Results Authors argue: Second, given ATMs are directly sold into the secondary market we might expect ATM firms to have greater stock liquidity. Indeed, controlling for other factors, larger turnover associates with more ATM firms than SEO firms, which is surprising in light of their smaller size (Intro, p. 4) Counterpoint: An interesting result, but odd that bid ask spreads go the other way (which hthey attribute t to smaller size). I d like to see a correlation matrix. Confusing as to whether or not they believe firm size is properly controlled for. 4

5 Economic Interpretation of Results Authors argue: Differences in investment bh behavior could drive the decision. R&D appears to be a larger ongoing expense for ATM firms. Perhaps because the dribble out issuance is more effective for staged projects. Counterpoint: Their results do not hold in the multivariate tests Suggests that their finding with respect to R&D is driven by other differences in the firms Returns Around ATMs and SEOs Compares SEO issuance to ATM announcement Combines returns from days 1 to +1 Seems odd even though often they are the same SEOs have a larger announcement drop The difference is driven by self selection 5

6 Returns Before ATMs and SEOs Stock prices runup more prior to SEOs Possibly because: ATM issuers can time the market later Runup is due to large new positive NPV investments Large SEO block is more natural than a dribble out I would think that this would lead to less negative announcement effects for SEOs Returns After ATMs and SEOs SEO issuers underperform their peers, ATM issuers don t Odd that this result is driven by peer performance and not issuer performence 6

7 ATM Usage 50% of filed shares end up being sold Shares are sold in 50% of quarters More are sold when volatility is low and previous quarter returns are high About 1/3 of firms sell all registered shares On average this takes about a year My Extension (Work in Progress) Investigate heterogeneity in the costs and benefits of ATM offerings Costs Market reaction Sales fees Bid ask spread increase Benefits Market timing ability Liquidity 7

8 Hypothesis ATM issuers most likely to be able to time the market are subject to higher costs Relative to ATM issuers demanding liquidity Regression Results (Preliminary) Independent Variables Predicted Sign Dependent Variable Liquidity Timing 2 Day Announcement Effect Bid Ask Increase Sale Fees Announcement Effect ( ) *** Max Sales Fees (+) ** Proceeds/Market cap (+) *** * * Log(Market cap) ( ) * *** day Stock Price Return (+) *** *** Net Income/Total Assets (+) ( ) *** ** Number of Leads Bid Ask Spread (Pre) * *** *** First ATM Indicator Cash/Total Assets REIT/Regulated ( ) * * Intercept ** *** Sample Size Adj. R square

9 Future Work Investigate whether ATM issuers time sales Compare realized sale prices with actual prices Can ATM issuers beat the market? If so, are the costs higher for issuers that ultimately time the market? Does timing the market on one ATM raise the Does timing the market on one ATM raise the costs for subsequent ATMs? 9