Financial intermediation and the rights offer paradox
AbstractIn this study, we investigate the trading dynamics around rights issues. We employ signed and unsigned trading activity measures in order to provide evidence of costly financial intermediation. We, first, document short selling activity by underwriters and shareholders during rights issues leading to significant negative abnormal returns during the offer. Further, we provide evidence that rights tend to be sold below their fair value. Our results, therefore, suggest that the lack of use of rights offering, referred to as the rights offer paradox can be explained by indirect costs related to the nature of constraints confronting underwriters and shareholders but also to trading mistakes on the rights market.
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Bibliographic InfoPaper provided by Paris Dauphine University in its series Economics Papers from University Paris Dauphine with number 123456789/4430.
Date of creation: Aug 2010
Date of revision:
SEO; Security offering; rights issues; flotation method; financial intermediation; order imbalance;
Find related papers by JEL classification:
- G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
- G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
- G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
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