Bounded Rationality, Rights Offerings, and Optimal Subscription Prices
AbstractIn an asymmetric information context with bounded rationality, investors’ loss aversion, mental accounting and buy-and-hold behavior may create opportunities for good-type firms to signal their project quality by choosing lower issuance prices at rights offerings than bad-type firms do. Bad firms are prevented from imitating better ones, as their doing so would induce reference price violations with a loss in utility that would exceed any corresponding additional proceeds from the sale of subscription rights. As a by-product, we have, on average, found positive announcement effects from rights offerings. Our behavioral approach may help to explain differing empirical findings across countries and can thus be interpreted as a (quite rudimentary) contribution to the newly developing field of “cultural corporate finance”.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoArticle provided by LMU Munich School of Management in its journal Schmalenbach Business Review.
Volume (Year): 60 (2008)
Issue (Month): 3 (July)
Bounded Rationality; Cultural Corporate Finance; Loss Aversion; Mental Accounting; Rights Issues; Signalling;
Find related papers by JEL classification:
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
- G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
You can help add them by filling out this form.
reading list or among the top items on IDEAS.Access and download statisticsgeneral information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (sbr).
If references are entirely missing, you can add them using this form.