Corporate Governance and Investor Reactions to Seasoned Equity Offerings

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We study the role of corporate governance in abnormal returns around announcements of seasoned equity offerings (SEOs) by publicly traded U. S. firms from 2001 - 2004. We find that investors react more positively for firms in which different people hold the CEO and board chairman positions. We also find limited evidence that investor reaction is more positive when the board has a greater representation of outside directors, the CEO has less ownership, and the board is not too large. Our findings suggest that investors react more favorably to SEOs by firms with stronger corporate governance mechanisms that reduce adverse selection or agency problems.