The Impact of Seasoned Equity Offerings on Stock Prices of Financially Distressed Companies: Evidence from Moroccan Market

Abstract

The present study investigates the impact of Seasoned Equity Offerings (SEOs) on stock prices, with a particular focus on financially distressed companies listed on the Casablanca Stock Exchange. Recognizing that SEOs can convey both positive and negative signals to the market, this research aims to explore how such operations are perceived when initiated by firms facing financial difficulties. Employing the Event Study Methodology, the analysis is conducted over an event window surrounding the SEO announcement dates in order to detect the presence of Abnormal Returns and evaluate how the market processes new information related to equity issuance. The sample includes six Moroccan listed companies that undertook SEOs during periods of financial distress. The empirical findings suggest that, in general, the announcement of an SEO by a distressed firm result in a negative reaction in stock prices, reflecting investors’ concerns about dilution effects and the firm’s financial instability. However, the analysis also shows that, in some cases, the market appears to reassess its initial reaction in the days following the announcement, especially when the SEO is associated with credible restructuring plans or financial recovery strategies. These results contribute to the broader literature on corporate finance and market efficiency by providing new evidence from an emerging market context. They offer useful insights for investors, policymakers, and corporate decision-makers, emphasizing the importance of timing, transparency, and signaling in the success of SEOs as a financing strategy for distressed firms.

Classification JEL : G14, G32, G33.

Paper type: Empirical Research