Can Information Asymmetry Hypothesis Properly Explain Announcement Effects of Seasoned Equity Issues in China?

This study aims to examine whether information asymmetry hypothesis can properly explain announcement effects of seasoned equity issues in China. We use the market adjusted model to measure announcement effects in event studies and use six variables (SIZE, AGE, VOL, B/M, VAR, and EARN) as proxies for information asymmetry in multiple regression analyses. The results show that cumulative abnormal returns around the announcement day are significantly positive for private placements but insignificant for public offerings. The results also show that the coefficients of all variables as proxies for information asymmetry are insignificant in regression analyses. The evidence indicates that information asymmetry hypothesis cannot properly explain the announcement effects of new equity issues in China.