IPOs are headline-grabbing events. But public companies raise even more capital through post-IPO issuances of shares, also known as seasoned equity offerings (SEOs). In 2025, total SEO proceeds topped $175 billion, as compared to approximately $47 billion for IPOs.
David S. Koo, assistant professor of accounting at Costello College of Business at George Mason University, explains, “Companies issue SEOs for a variety of reasons—for example, to pay down debts, fund capital expenditure, support R&D, or finance an acquisition.”
SEOs, like IPOs, require approval from the Securities and Exchange Commission (SEC). Would-be issuers must undergo a registration process where they provide “more information about the company, its risk exposure, potential dilution of existing shares that may result from the SEO, as well as how it intends to use the proceeds,” says Koo.
His recent paper in The Financial Review reveals a simple way in which the SEC could improve information-sharing with financial markets around SEOs. The paper was co-authored by Hong Qian of Oakland University and Santhosh Ramalingegowda of University of Georgia.
The researchers focused on a putatively rich informational source: the SEC’s comment letters to issuers, often used by the agency to flag concerns and request revised documents as part of the SEO registration process. To preserve companies’ privacy, comment letters are held back from the public for 20 business days once the SEC has wrapped up its review. Therefore, if a company decides to fast-track its offering, the SEO can commence before investors learn what was written in those comment letters.
The researchers set out to discover what difference, if any, the timing of comment letters’ release makes for the marketplace. Their dataset covered 2,453 SEOs over the period 2005-2021 and the associated comment letters uploaded to the publicly available SEC database. Overall, 458 of the observed SEOs (18.7 percent of the total) prompted at least one comment letter.
The study distinguished between two types of equity offerings: “shelf offerings,” where issuers release blocks of shares over time at their discretion, and one-shot, or “non-shelf” offerings. (About two-thirds of the SEOs included in the study were shelf offerings.)
“In the case of non-shelf, companies often proceed to the offering almost immediately after gaining approval,” Koo says. “For these SEOs, it is less likely that we will see comment letters released before the SEO offer date. But for the shelf offerings, there is relatively less urgency, and companies are seeking flexibility. The process is longer, and we more frequently see comment letters released prior to the offer date.”
Shelf offerings that saw at least one SEC comment letter disclosed prior to the offer date experienced an unusually large (26 percent greater than average) discount. This apparently represented the issuer’s "cost” of negative information, as the contents of comment letters were absorbed into the bloodstream of financial markets.
“In the case of non-shelf, companies often proceed to the offering almost immediately after gaining approval. For these SEOs, it is less likely that we will see comment letters released before the SEO offer date. But for the shelf offerings, there is relatively less urgency, and companies are seeking flexibility. The process is longer, and we more frequently see comment letters released prior to the offer date.”
— David S. Koo, assistant professor of accounting at Costello College of Business at George Mason University
The receipt of a comment letter extended the registration process for both shelf and non-shelf offerings, by 66 and 19 days respectively at median. Each additional comment lengthened registration by seven days for shelf issuers, and two days for non-shelf issuers. And this delay, in turn, is associated with lower investment. The study found that issuers with the longest registration period had much lower rates of investment than their fast-tracked peers, in the four quarters after filing the SEO with the SEC.
“When companies raise a significant amount of money, that usually means they want to use it for important investment, whether that is capital expenditure or acquiring another company,” Koo says. “Those that were not able to raise money in a timely manner were less able to make timely or adequate investment.”
Although the SEC’s due diligence came at a measurable cost to target companies, there was a discernible logic to it. The researchers found that the characteristics of SEOs that came under SEC scrutiny fit with general agency priorities. Though relatively few (less than 20 percent of the total, as noted above) were flagged, those that were came from issuers with smaller market capitalization, lower institutional ownership and prior SEC comment letters. “It seems that the SEC is targeting companies that are more likely to have some disclosure or informational problem,” Koo says. “In so doing, they are making wise use of limited resources.”
Yet the agency’s precious time and resources might be partly wasted, if the information contained in comment letters comes out too late to impact the SEO market. That is why Koo recommends that the SEC reconsider the 20-day withholding window for comment letters.
“Some letters are mainly for clarification, while others are substantive,” Koo says. “Either way, investors would want to know about that communication in a timely manner, especially as the informational environment is becoming more advanced with the integration of AI tools.”