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Seasoned Equity Issues in a Closely Held Market: Evidence from France

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  • Gajewski, Jean-François
  • Ginglinger, Edith
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    Abstract

    This paper examines seasoned equity offerings in France. Even though a rights offering is the primary flotation method, French companies are increasingly using the relatively expensive public offering method. We show that the market reaction to the announcement of seasoned equity issues is significantly negative for rights issues and insignificantly negative for public offerings. Our results suggest that the adverse selection effect is greater for rights issues than for public offerings, due to stronger underwriter certification for the public offerings. We find that the share price effect is positively related to blockholders take-up renouncements for firms with prior concentrated ownership. For these firms, the favourable ownership dispersion effect offsets the adverse selection effect.

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    File URL: http://basepub.dauphine.fr/xmlui/bitstream/123456789/1949/2/SeasonedEquity_Ginglinger.pdf
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    Bibliographic Info

    Paper provided by Paris Dauphine University in its series Economics Papers from University Paris Dauphine with number 123456789/1949.

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    Date of creation: 2002
    Date of revision:
    Publication status: Published in Review of Finance, 2002, Vol. 6, no. 3. pp. 291-319.Length: 28 pages
    Handle: RePEc:dau:papers:123456789/1949

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    Related research

    Keywords: Corporate SEOs; Risk management; Rights offerings; Flotation methods; Ownership structure; Seasoned equity issues;

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    References

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    1. Lucas, Deborah J & McDonald, Robert L, 1990. " Equity Issues and Stock Price Dynamics," Journal of Finance, American Finance Association, American Finance Association, vol. 45(4), pages 1019-43, September.
    2. La Porta, Rafael & Lopez-de-Silanes, Florencio & Shleifer, Andrei & Vishny, Robert, 2000. "Investor protection and corporate governance," Journal of Financial Economics, Elsevier, Elsevier, vol. 58(1-2), pages 3-27.
    3. Jun-Koo Kang & Rene M. Stulz, 1994. "How Different is Japanese Corporate Finance? An Investigation of the Information Content of New Security Issues," NBER Working Papers 4908, National Bureau of Economic Research, Inc.
    4. Korajczyk, Robert A & Lucas, Deborah J & McDonald, Robert L, 1991. "The Effect of Information Releases on the Pricing and Timing of Equity Issues," Review of Financial Studies, Society for Financial Studies, Society for Financial Studies, vol. 4(4), pages 685-708.
    5. Scholes, Myron & Williams, Joseph, 1977. "Estimating betas from nonsynchronous data," Journal of Financial Economics, Elsevier, Elsevier, vol. 5(3), pages 309-327, December.
    6. Smith, Clifford Jr., 1977. "Alternative methods for raising capital : Rights versus underwritten offerings," Journal of Financial Economics, Elsevier, Elsevier, vol. 5(3), pages 273-307, December.
    7. White, Halbert, 1980. "A Heteroskedasticity-Consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity," Econometrica, Econometric Society, Econometric Society, vol. 48(4), pages 817-38, May.
    8. Singh, Ajai K., 1997. "Layoffs and underwritten rights offers," Journal of Financial Economics, Elsevier, Elsevier, vol. 43(1), pages 105-130, January.
    9. Asquith, Paul & Mullins, David Jr., 1986. "Equity issues and offering dilution," Journal of Financial Economics, Elsevier, Elsevier, vol. 15(1-2), pages 61-89.
    10. Robert S. Hansen, 1988. "The Demise of the Rights Issue," Review of Financial Studies, Society for Financial Studies, Society for Financial Studies, vol. 1(3), pages 289-309.
    11. Eckbo, B. Espen & Masulis, Ronald W., 1992. "Adverse selection and the rights offer paradox," Journal of Financial Economics, Elsevier, Elsevier, vol. 32(3), pages 293-332, December.
    12. Heflin, Frank & Shaw, Kenneth W., 2000. "Blockholder Ownership and Market Liquidity," Journal of Financial and Quantitative Analysis, Cambridge University Press, Cambridge University Press, vol. 35(04), pages 621-633, December.
    13. 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.
    14. Dimson, Elroy, 1979. "Risk measurement when shares are subject to infrequent trading," Journal of Financial Economics, Elsevier, Elsevier, vol. 7(2), pages 197-226, June.
    15. Holmstrom, Bengt & Tirole, Jean, 1993. "Market Liquidity and Performance Monitoring," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 101(4), pages 678-709, August.
    16. Masulis, Ronald W. & Korwar, Ashok N., 1986. "Seasoned equity offerings : An empirical investigation," Journal of Financial Economics, Elsevier, Elsevier, vol. 15(1-2), pages 91-118.
    17. Hsuan-Chi Chen & Jay R. Ritter, 2000. "The Seven Percent Solution," Journal of Finance, American Finance Association, American Finance Association, vol. 55(3), pages 1105-1131, 06.
    18. Korajczyk, Robert A. & Lucas, Deborah J. & McDonald, Robert L., 1992. "Equity Issues with Time-Varying Asymmetric Information," Journal of Financial and Quantitative Analysis, Cambridge University Press, Cambridge University Press, vol. 27(03), pages 397-417, September.
    19. Hansen, Robert S & Pinkerton, John M, 1982. " Direct Equity Financing: A Resolution of a Paradox," Journal of Finance, American Finance Association, American Finance Association, vol. 37(3), pages 651-65, June.
    20. Mikkelson, Wayne H. & Partch, M. Megan, 1988. "Withdrawn Security Offerings," Journal of Financial and Quantitative Analysis, Cambridge University Press, Cambridge University Press, vol. 23(02), pages 119-133, June.
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    Cited by:
    1. Gajewski, Jean-Francois & Ginglinger, Edith & Lasfer, Meziane, 2007. "Why do companies include warrants in seasoned equity offerings?," Journal of Corporate Finance, Elsevier, Elsevier, vol. 13(1), pages 25-42, March.
    2. Errunza, Vihang R. & Miller, Darius P., 2003. "Valuation effects of seasoned global equity offerings," Journal of Banking & Finance, Elsevier, Elsevier, vol. 27(9), pages 1611-1623, September.
    3. Suchard, Jo-Ann, 2005. "The use of stand alone warrants as unique capital raising instruments," Journal of Banking & Finance, Elsevier, Elsevier, vol. 29(5), pages 1095-1112, May.
    4. Adaoglu, Cahit, 2006. "Market reaction to "unsweetened" and "sweetened" rights offerings in an emerging European stock market," Journal of Multinational Financial Management, Elsevier, Elsevier, vol. 16(3), pages 249-268, July.
    5. Massimo Massa & Theo Vermaelen & Moqi Xu, 2013. "Rights offerings, trading, and regulation: A global perspective," FMG Discussion Papers, Financial Markets Group dp727, Financial Markets Group.
    6. Kabir, Rezaul, 2003. "Corporate Financing in The Netherlands: Some Empirical Evidence," EIFC - Technology and Finance Working Papers, United Nations University, Institute for New Technologies 32, United Nations University, Institute for New Technologies.
    7. Hatem Mansali, 2009. "La gestion des résultats et les performances comptables à long terme des entreprises françaises émettrices d’actions," Revue Finance Contrôle Stratégie, revues.org, revues.org, vol. 12(4), pages 39-83, December.
    8. Philip Brown & Andrew Ferguson & Kate Stone, 2008. "Share Purchase Plans in Australia: Issuer Characteristics and Valuation Implications," Australian Journal of Management, Australian School of Business, Australian School of Business, vol. 33(2), pages 307-332, December.
    9. Bozos, Konstantinos & Nikolopoulos, Konstantinos, 2011. "Forecasting the value effect of seasoned equity offering announcements," European Journal of Operational Research, Elsevier, Elsevier, vol. 214(2), pages 418-427, October.
    10. Suchard, Jo-Ann & Singh, Manohar, 2006. "The determinants of the hybrid security issuance decision for Australian firms," Pacific-Basin Finance Journal, Elsevier, Elsevier, vol. 14(3), pages 269-290, June.
    11. Mohamed Faker Klibi & Hamadi Matoussi, 2007. "Gestion Des Resultats Et Performance Comptable Et Boursiere Des Entreprises Émettrices De Nouvelles Actions," Post-Print, HAL halshs-00534752, HAL.

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