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The Seasoned-Equity Issues of UK Firms: Market Reaction and Issuance Method Choice

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  • Edel Barnes
  • Martin Walker
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    Abstract

    This study examines the seasoned equity issues of companies traded on the London Stock Exchange. Recent regulatory changes have allowed UK firms more discretion in choice of issue approach, and this has led many firms to issue through placing in preference to a rights issue. Having first documented the trend towards increasing use of placings, we go on to identify an interesting subset of placings that are less likely to be anticipated by the market, and find a significant positive market reaction to such placings, which contrasts with the significant negative reaction we find for issues by rights. We also examine the choice of seasoned equity issuance method, focusing on the choice between placings versus rights issues. We develop a model to explain the choice of equity issue method that achieves a high level of predictive accuracy. Copyright Blackwell Publishers Ltd, 2006.

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    Bibliographic Info

    Article provided by Wiley Blackwell in its journal Journal of Business Finance & Accounting.

    Volume (Year): 33 (2006-01)
    Issue (Month): 1-2 ()
    Pages: 45-78

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    Handle: RePEc:bla:jbfnac:v:33:y:2006-01:i:1-2:p:45-78

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    Web page: http://www.blackwellpublishing.com/journal.asp?ref=0306-686X

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    Cited by:
    1. Yanzhi Wang & Sheng-Syan Chen & Yen-Ting Cheng, 2011. "Revisiting corporate dividends and seasoned equity issues," Review of Quantitative Finance and Accounting, Springer, vol. 36(1), pages 133-151, January.
    2. Andrikopoulos, Panagiotis, 2009. "Seasoned equity offerings, operating performance and overconfidence: Evidence from the UK," Journal of Economics and Business, Elsevier, vol. 61(3), pages 189-215.
    3. Shu, Pei-Gi & Chiang, Sue-Jane, 2014. "Firm size, timing, and earnings management of seasoned equity offerings," International Review of Economics & Finance, Elsevier, vol. 29(C), pages 177-194.
    4. Chen, Hsuan-Chi & Shu, Pei-Gi & Chiang, Sue-Jane, 2011. "The choice between bookbuilding and fixed-price offering: Evidence from SEOs in Taiwan," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 21(1), pages 28-48, February.
    5. Normazia, M. & Hassan, Taufiq & Ariff, M. & Shamsher, M., 2013. "Private placement, share prices, volume and financial crisis: An emerging market study," Global Finance Journal, Elsevier, vol. 24(3), pages 203-221.
    6. Ginglinger, Edith & Koenig-Matsoukis, Laure & Riva, Fabrice, 2013. "Seasoned equity offerings: Stock market liquidity and the rights offer paradox," Economics Papers from University Paris Dauphine 123456789/10852, Paris Dauphine University.

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