Seasoned equity offers and rights issues: a review of the evidence
AbstractThe paper reviews evidence from the USA and UK on seasoned equity offers (SEOs) and rights issues. There are two main avenues of research: first, the market reaction to announcements of SEOs, and the related questions of the price elasticity of demand for new shares and the timing of issues; second, the costs of issuing and choice of issuing method. The negative reaction to announcements is well documented and the evidence suggests it is more due to an issue being a signal of overvaluation than to inelastic demand. Other findings are less well understood. The shares of issuers underperform appreciably in the long term, and there is evidence that market receptiveness to new issues varies. Companies tend to choose the most expensive method of issue both in terms of direct costs and negative market reaction. US companies use underwritten non-rights, through underwriting increases the direct costs. A possible explanation is that certification of issue value by the sponsor is more credible with non-rights issues in the USA and underwritten rights in the UK than with the apparently cheaper alternatives.
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Bibliographic InfoArticle provided by Taylor & Francis Journals in its journal The European Journal of Finance.
Volume (Year): 4 (1998)
Issue (Month): 1 ()
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- 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.
- Kabir, R. & Roosenboom, P.G.J., 2002.
"Can the stock market anticipate future operating performance? Evidence from equity rights issues,"
ERIM Report Series Research in Management
ERS-2002-102-F&A, Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus Uni.
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- B. M. Burton & D. M. Power, 2003. "Evidence on the determinants of equity issue method in the UK," Applied Financial Economics, Taylor & Francis Journals, vol. 13(2), pages 145-157.
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