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Evidence on the determinants of equity issue method in the UK

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Author Info
B. M. Burton
D. M. Power
Abstract

Eckbo and Masulis (1992), Burton et al. (1999) and Armitage (1999) reported that the method used to issue new shares is one of the key determinants of the market reaction to seasoned equity offer announcements. This article develops this earlier line of research by examining a sample of 193 rights issues and 329 placings of shares made by UK firms between 1995 and 1996. It (i) details the relative popularity of rights and placings amongst London-quoted firms; (ii) compares the characteristics of the equity issues made under the different methods; (iii) examines variations in the attributes of firms which place their shares or offer them to existing investors via a rights issue and; (iv) uses logit analysis to investigate whether the determinants of offer method choice can be modelled accurately. A holdout sample of 59 placings and 29 rights issues is employed to examine the predictive ability of the logit model results. The evidence suggests that identifiable differences exist in both the size of the issue and the characteristics of the issuer, but that these differences provide only limited ability to predict equity issue methods accurately.

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Article provided by Taylor and Francis Journals in its journal Applied Financial Economics.

Volume (Year): 13 (2003)
Issue (Month): 2 (January)
Pages: 145-157
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Handle: RePEc:taf:apfiec:v:13:y:2003:i:2:p:145-157

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Bhagat, Sanjai, 1983. "The effect of pre-emptive right amendments on shareholder wealth," Journal of Financial Economics, Elsevier, vol. 12(3), pages 289-310, November. [Downloadable!] (restricted)
  2. Denis, David J., 1994. "Investment Opportunities and the Market Reaction to Equity Offerings," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 29(02), pages 159-177, June. [Downloadable!]
  3. 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. [Downloadable!]
  4. 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. [Downloadable!] (restricted)
  5. Titman, Sheridan & Wessels, Roberto, 1988. " The Determinants of Capital Structure Choice," Journal of Finance, American Finance Association, vol. 43(1), pages 1-19, March. [Downloadable!] (restricted)
  6. 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. [Downloadable!] (restricted)
  7. Bayless, Mark & Chaplinsky, Susan, 1996. " Is There a Window of Opportunity for Seasoned Equity Issuance?," Journal of Finance, American Finance Association, vol. 51(1), pages 253-78, March. [Downloadable!] (restricted)
  8. Loughran, Tim & Ritter, Jay R, 1995. " The New Issues Puzzle," Journal of Finance, American Finance Association, vol. 50(1), pages 23-51, March. [Downloadable!] (restricted)
  9. Steven Fazzari & R. Glenn Hubbard & Bruce C. Petersen, 1988. "Financing Constraints and Corporate Investment," NBER Working Papers 2387, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  10. Michael S. Long & Ileen B. Malitz, 1983. "Investment Patterns and Financial Leverage," NBER Working Papers 1145, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  11. Taub, Allan J, 1975. "Determinants of the Firm's Capital Structure," The Review of Economics and Statistics, MIT Press, vol. 57(4), pages 410-16, November. [Downloadable!] (restricted)
  12. Seth Armitage, 2000. "The direct costs of UK rights issues and open offers," European Financial Management, Blackwell Publishing Ltd, vol. 6(1), pages 57-68. [Downloadable!] (restricted)
  13. Asquith, Paul & Mullins, David Jr., 1986. "Equity issues and offering dilution," Journal of Financial Economics, Elsevier, vol. 15(1-2), pages 61-89. [Downloadable!] (restricted)
  14. Asquith, Paul & Mullins, David W, Jr, 1983. "The Impact of Initiating Dividend Payments on Shareholders' Wealth," Journal of Business, University of Chicago Press, vol. 56(1), pages 77-96, January. [Downloadable!] (restricted)
  15. Marsh, Paul, 1982. " The Choice between Equity and Debt: An Empirical Study," Journal of Finance, American Finance Association, vol. 37(1), pages 121-44, March. [Downloadable!] (restricted)
  16. Masulis, Ronald W. & Korwar, Ashok N., 1986. "Seasoned equity offerings : An empirical investigation," Journal of Financial Economics, Elsevier, vol. 15(1-2), pages 91-118. [Downloadable!] (restricted)
  17. Burton, Bruce M & Lonie, A Alasdair & Power, David M, 1999. "Does the Issue Method Influence the Market Reaction to Seasoned Equity Offer Announcements?," Applied Economics Letters, Taylor and Francis Journals, vol. 6(7), pages 459-62, July. [Downloadable!] (restricted)
  18. Baxter, Nevins D & Cragg, John G, 1970. "Corporate Choice Among Long-Term Financing Instruments," The Review of Economics and Statistics, MIT Press, vol. 52(3), pages 225-35, August. [Downloadable!] (restricted)
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