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The choice between rights and underwritten equity offerings: Evidence from Chinese stock markets

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  • Dang, Li
  • Yang, J. Jimmy
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    Abstract

    We study the choice and valuation effects of alternative flotation methods using a sample of Chinese firms that must meet the return on equity (ROE) thresholds set by the government to raise equity capital. The ROE requirement, although changed over time, seems to play an important role on the valuation and performance of seasoned equity offerings. The analysis of 219 rights and 75 underwritten offerings between 2000 and 2004 shows that Chinese firms that are not qualified for the flotation method with a higher ROE requirement suffer the most at announcement and experience significantly lower buy-and-hold abnormal returns than those that are qualified. Our results suggest that the freedom to choose their preferred flotation method may be valuable to firms that meet the higher ROE requirement. Finally, our probit models identify several determinants of the choice of flotation methods.

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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Multinational Financial Management.

    Volume (Year): 23 (2013)
    Issue (Month): 3 ()
    Pages: 235-253

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    Handle: RePEc:eee:mulfin:v:23:y:2013:i:3:p:235-253

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    Web page: http://www.elsevier.com/locate/mulfin

    Related research

    Keywords: Flotation method; Chinese stock markets; Abnormal returns; Seasoned equity offering;

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    References

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    Cited by:
    1. Jiang, Zhan & Kim, Kenneth A., 2013. "Financial management in China," Journal of Multinational Financial Management, Elsevier, vol. 23(3), pages 125-133.

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