Small Business Economics

, Volume 38, Issue 4, pp 449–465 | Cite as

Seasoned equity offerings by small and medium-sized enterprises

  • Cécile Carpentier
  • Jean-François L’Her
  • Jean-Marc Suret


Most analyses of small firms’ decision to seek outside equity financing and the conditions thereof concern private firms. Knowledge of the risk and return of entrepreneurial ventures for outside investors is consequently limited. This paper attempts to fill this gap by examining the Canadian context, where small and medium-sized enterprises (SMEs) are allowed to list on a stock market. We analyze seasoned equity offerings launched by SMEs over the last decade. These public issuers can be considered low quality firms with poor operating performance. Managers issue equity before a large decrease in operating and stock market performance. Individual investors do not price the stocks correctly around the issue and incur significant negative returns in the years following the issue. This is particularly true for constrained issuers. We confirm that entrepreneurial outside equity attracts lemons and that individual investors cannot invest wisely in emerging ventures. Probably as a consequence of individual investors’ lack of skill and rationality, the cost of outside equity financing of Canadian public SMEs is abnormally low.


Financing decision Equity offerings Small business Long-run performance Cost of equity Financial constraints 

JEL Classifications

G14 G32 L26 


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Copyright information

© Springer Science+Business Media, LLC. 2010

Authors and Affiliations

  • Cécile Carpentier
    • 1
  • Jean-François L’Her
    • 2
  • Jean-Marc Suret
    • 1
  1. 1.Laval UniversityQuebecCanada
  2. 2.Caisse de dépôt et placement du QuébecMontrealCanada

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