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Rights offerings, takeup, renounceability, and underwriting status

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  • Balachandran, Balasingham
  • Faff, Robert
  • Theobald, Michael

Abstract

Rights offerings in Australia provide valuable choices to the issuer in terms of both underwriting and renounceability. We formulate a set of hypotheses from a quality-signaling perspective, affording an analysis of the key interrelations between quality, underwriting status, renounceability, takeup, and subscription price discount. We analyse rights offerings from two perspectives: market reaction to rights announcements and identification of the factors driving the choice of issue type. Evidence strongly supports the relation between quality signals and issue type. Using a robustly constructed takeup variable, we establish empirical relations between takeup, underwriting status, and renounceability that differ significantly from those previously reported, but which are consistent with the hypotheses developed in this paper.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Financial Economics.

Volume (Year): 89 (2008)
Issue (Month): 2 (August)
Pages: 328-346

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Handle: RePEc:eee:jfinec:v:89:y:2008:i:2:p:328-346

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Web page: http://www.elsevier.com/locate/inca/505576

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  1. B[oslash]hren, [Oslash]yvind & Eckbo, B. Espen & Michalsen, Dag, 1997. "Why underwrite rights offerings? Some new evidence," Journal of Financial Economics, Elsevier, vol. 46(2), pages 223-261, November.
  2. Nancy D. Ursel, 2006. "Rights Offerings and Corporate Financial Condition," Financial Management, Financial Management Association, vol. 35(1), Spring.
  3. Garry Twite, 2001. "Capital Structure Choices and Taxes: Evidence from the Australian Dividend Imputation Tax System," International Review of Finance, International Review of Finance Ltd., vol. 2(4), pages 217-234.
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  5. Robert S. Hansen, 1988. "The Demise of the Rights Issue," Review of Financial Studies, Society for Financial Studies, vol. 1(3), pages 289-309.
  6. Singh, Ajai K., 1997. "Layoffs and underwritten rights offers," Journal of Financial Economics, Elsevier, vol. 43(1), pages 105-130, January.
  7. Nancy D. Ursel, 2006. "Rights Offerings and Corporate Financial Condition," Financial Management, Financial Management Association International, vol. 35(1), pages 31-52, 03.
  8. Booth, James R. & Smith, Richard II, 1986. "Capital raising, underwriting and the certification hypothesis," Journal of Financial Economics, Elsevier, vol. 15(1-2), pages 261-281.
  9. Myers, Stewart C. & Majluf, Nicholas S., 1984. "Corporate financing and investment decisions when firms have information that investors do not have," Journal of Financial Economics, Elsevier, vol. 13(2), pages 187-221, June.
  10. Krasker, William S, 1986. " Stock Price Movements in Response to Stock Issues under Asymmetric Information," Journal of Finance, American Finance Association, vol. 41(1), pages 93-105, March.
  11. Stijn Claessens & Simeon Djankov & Joseph P. H. Fan & Larry H. P. Lang, 2002. "Disentangling the Incentive and Entrenchment Effects of Large Shareholdings," Journal of Finance, American Finance Association, vol. 57(6), pages 2741-2771, December.
  12. Myers, Stewart C. & Majluf, Nicolás S., 1945-, 1984. "Corporate financing and investment decisions when firms have information that investors do not have," Working papers 1523-84., Massachusetts Institute of Technology (MIT), Sloan School of Management.
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  14. Cronqvist, Henrik & Nilsson, Mattias, 2005. "The choice between rights offerings and private equity placements," Journal of Financial Economics, Elsevier, vol. 78(2), pages 375-407, November.
  15. Stewart C. Myers & Nicholas S. Majluf, 1984. "Corporate Financing and Investment Decisions When Firms Have InformationThat Investors Do Not Have," NBER Working Papers 1396, National Bureau of Economic Research, Inc.
  16. Marsh, Paul, 1980. " Valuation of Underwriting Agreements for UK Rights Issues," Journal of Finance, American Finance Association, vol. 35(3), pages 693-716, June.
  17. Jensen, Michael C. & Meckling, William H., 1976. "Theory of the firm: Managerial behavior, agency costs and ownership structure," Journal of Financial Economics, Elsevier, vol. 3(4), pages 305-360, October.
  18. Eckbo, B. Espen & Masulis, Ronald W., 1992. "Adverse selection and the rights offer paradox," Journal of Financial Economics, Elsevier, vol. 32(3), pages 293-332, December.
  19. Marsden, Alastair, 2000. "Shareholder wealth effects of rights issues: Evidence from the New Zealand capital market," Pacific-Basin Finance Journal, Elsevier, vol. 8(3-4), pages 419-442, July.
  20. Heinkel, Robert L & Schwartz, Eduardo S, 1986. " Rights versus Underwritten Offerings: An Asymmetric Information Approach," Journal of Finance, American Finance Association, vol. 41(1), pages 1-18, March.
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Cited by:
  1. Massimo Massa & Theo Vermaelen & Moqi Xu, 2013. "Rights offerings, trading, and regulation: a global perspective," LSE Research Online Documents on Economics 55403, London School of Economics and Political Science, LSE Library.
  2. Lee, Chin-Chong & Poon, Wai-Ching & Sinnakkannu, Jothee, 2014. "Why are rights offers in Hong Kong so different?," Pacific-Basin Finance Journal, Elsevier, vol. 26(C), pages 176-197.

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