Influence of Anchoring Effect on Probability of FPO and Post-FPO Efficiency: Behavioral Signalling Approach

It is a well-known fact that there is a strong correlation between economic cycles and further public offerings. Also, it has been proven that the decision to arrange a follow-on public offering (FPO) is often influenced not only by external market environment and internal corporate motivation, but also by behavioural distortions of chief executive officers (CEOs), such as the anchoring effect. This study confirms the fact that company performance parameters at the moment of the CEO turnover are significant reference points: if these are lower, the CEO is unwilling to attract additional capital using FPO. What is more important, the stability of the anchoring effect over time has been demonstrated. It means that CEOs tend to be under the influence of their reference points during the entire period of being in position. Finally, it has been shown that CEOs free of the anchoring effect are more likely to invest the raised funds in a more efficient manner than the market average, which can be the basis for behavioural signal approach for both private and institutional investors.