Valuation Effects of Insurers' Security Offerings

Abstract

Valuation effects of insurers' security offerings are examined by measuring the share price response to announcements of impending security issues. Insurers exhibit unique characteristics that can cause the signal emitted by their security offerings to differ from that of other firms. An event methodology is used. Results of this analysis confirm that insurance company share prices react uniquely when compared to security offerings in other industries. For the entire sample, the market reaction in response to equity offerings or to debt offerings is more favorable than what has been found for industrial firms. Cross-sectional analyses suggest that abnormal returns associated with equity offerings are negatively related to the relative size of the offering and change in leverage and are positively related to growth in sales. Abnormal returns associated with debt offerings are positively related to the relative size of the offering and negatively related to growth in sales.

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