Stock market liquidity and the rights offer paradox
AbstractThis paper contributes to the resolution of the rights offer paradox, using a database of French SEOs. We first document higher direct flotation costs, but also improved stock market liquidity after public offerings and standby rights relative to uninsured rights. We find that blockholder renouncements to subscribe to new shares and stock market liquidity are important determinants of flotation method choice. After controlling for endogeneity in the choice of flotation method, we find that public offerings are cost effective and more liquidity improving than standby rights whereas an uninsured rights offering is the best choice for low liquidity, closely held firms. Our results provide new insights as to why firms choose public offerings despite apparently higher costs.
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Bibliographic InfoPaper provided by Paris Dauphine University in its series Economics Papers from University Paris Dauphine with number 123456789/3035.
Date of creation: Dec 2009
Date of revision:
bid-ask spread; Security offering; SEO; flotation method; flotation costs; rights issues; public offerings; liquidity;
Find related papers by JEL classification:
- G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
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