AN EMPIRICAL-INVESTIGATION OF SHORT-SELLING ACTIVITY PRIOR TO SEASONED EQUITY OFFERINGS

We investigate the nature and magnitude of short-selling activity arou nd seasoned equity offerings, the relation between short-selling activ ity and issue discounts, and the consequences of the Securities and Ex change Commission (SEC's) adoption of Rule 10b-21 in response to conce rns about manipulative short-selling practices. Seasoned offerings are characterized by abnormally high levels of short selling and option o pen interest. Higher levels of such activity are related to lower expe cted proceeds from the issuance of new shares. Where it could not be c ircumvented, Rule 10b-21 appears to have curbed short-selling activity and reduced issue discounts.