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Seasoned equity offerings: Stock market liquidity and the rights offer paradox

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  • Ginglinger, Edith
  • Koenig-Matsoukis, Laure
  • Riva, Fabrice
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    Abstract

    This paper examines the impact of market liquidity on seasoned equity offerings (SEO) characteristics in France. We find that, besides blockholders’ takeup, liquidity is an important determinant of SEO flotation method choice. We document higher direct equity offering flotation costs, but also improved stock market liquidity after public offerings and standby rights relative to uninsured rights. After controlling for endogeneity in the choice of SEO flotation method, we find that pure public offerings and standby rights are comparable in terms of direct costs and liquidity improvement. Our results provide new insights as to why firms choose public offerings despite apparently higher costs.

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    File URL: http://basepub.dauphine.fr/xmlui/bitstream/123456789/10852/1/SSRN-id2167327.pdf
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    Bibliographic Info

    Paper provided by Paris Dauphine University in its series Economics Papers from University Paris Dauphine with number 123456789/10852.

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    Date of creation: Jan 2013
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    Publication status: Published in Journal of Business, Finance and Accounting, 2013, Vol. 40, no. 1-2. pp. 215-238.Length: 23 pages
    Handle: RePEc:dau:papers:123456789/10852

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    Related research

    Keywords: SEO; Seasoned equity offering; flotation method; flotation costs; rights issues; public offerings; liquidity; bid-ask spread;

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    1. Asparouhova, Elena & Bessembinder, Hendrik & Kalcheva, Ivalina, 2010. "Liquidity biases in asset pricing tests," Journal of Financial Economics, Elsevier, Elsevier, vol. 96(2), pages 215-237, May.
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    21. Chordia, Tarun & Subrahmanyam, Avanidhar & Anshuman, V. Ravi, 2001. "Trading activity and expected stock returns," Journal of Financial Economics, Elsevier, Elsevier, vol. 59(1), pages 3-32, January.
    22. B[oslash]hren, [Oslash]yvind & Eckbo, B. Espen & Michalsen, Dag, 1997. "Why underwrite rights offerings? Some new evidence," Journal of Financial Economics, Elsevier, Elsevier, vol. 46(2), pages 223-261, November.
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