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The choice between rights-preserving issue methods : regulatory and financial aspects of issuing seasoned equity in the UK

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Author Info
Korteweg, A.
Renneboog, L.D.R. (Tilburg University, Center for Economic Research)

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Abstract

This paper examines the choice between two rights-preserving issue methods of seasoned equity offers in the UK as well as the factors determining the offer price and stock market announcement reactions. Firstly, equity issues in the UK are underwritten for different reasons than in other countries. Only severely financially distressed companies choose not to underwrite their share offer. Second, the average announcement reaction to non-underwritten issues is much more negative than to underwritten issues. This contrasts sharply with the results found in other countries, such as the US. Third, underwritten rights issues experience a negative announcement return whereas the share price reaction to underwritten open offers is positive. The choice of issue method and the subsequent announcement reaction are explained by directors' and institutional investors' interests, growth opportunities, stock market uncertainty and liquidity in the market for rights.

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Paper provided by Tilburg University, Center for Economic Research in its series Discussion Paper with number 93.

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Date of creation: 2002
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Handle: RePEc:dgr:kubcen:200293

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Web page: http://center.uvt.nl

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Find related papers by JEL classification:
G3 - Financial Economics - - Corporate Finance and Governance
G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation
G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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  1. Galai, Dan & Masulis, Ronald W., 1976. "The option pricing model and the risk factor of stock," Journal of Financial Economics, Elsevier, vol. 3(1-2), pages 53-81. [Downloadable!] (restricted)
  2. de Jong, Abe & Veld, Chris, 2001. "An empirical analysis of incremental capital structure decisions under managerial entrenchment," Journal of Banking & Finance, Elsevier, vol. 25(10), pages 1857-1895, October. [Downloadable!] (restricted)
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  3. Raghavendra Rau, P. & Vermaelen, Theo, 1998. "Glamour, value and the post-acquisition performance of acquiring firms1," Journal of Financial Economics, Elsevier, vol. 49(2), pages 223-253, August. [Downloadable!] (restricted)
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