Do Firms Issue More Equity When Markets Become More Liquid?

Using quarterly data on initial public offerings (IPOs) and seasoned equity offerings (SEOs) for 37 countries from 1995 to 2014, we show that changes in equity issuance are positively related to lagged changes in aggregate local stock market liquidity. This relation is as economically significant as the well-known relation between equity issuance and lagged stock returns. It survives the inclusion of proxies for market timing, capital market conditions, growth prospects, asymmetric information, and investor sentiment. Changes in liquidity are less relevant for issuance by firms with greater financial pressures and by firms in less financially developed countries.