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The choice between rights offerings and private equity placements

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Author Info

  • Cronqvist, Henrik

    ()
    (The Ohio State University)

  • Nilsson, Mattias

    ()
    (Stockholm Institute for Financial Research (SIFR))

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    Abstract

    We develop and test a nested logit model to examine how firms choose between a rights offering and a private equity placement. We find that family-controlled firms avoid issue methods that dilute control benefits or subject them to more monitoring, in particular when the family’s control margin is small and the wedge between votes and capital is large. Control considerations also affect security design in equity issues. We also find that firms use private placements to reduce contracting and ex post holdup costs in new product market relationships. Finally, we find that firms with higher asymmetric information about firm value are more likely to involve underwriter certification in a rights offering, and to choose a private placement when information asymmetries are extreme.

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    Bibliographic Info

    Paper provided by Stockholm School of Economics in its series Working Paper Series in Economics and Finance with number 0452.

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    Length: 43 pages
    Date of creation: 08 Jun 2001
    Date of revision: 21 Jan 2002
    Publication status: Forthcoming in Journal of Financial Economics.
    Handle: RePEc:hhs:hastef:0452

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    Postal: The Economic Research Institute, Stockholm School of Economics, P.O. Box 6501, 113 83 Stockholm, Sweden
    Phone: +46-(0)8-736 90 00
    Fax: +46-(0)8-31 01 57
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    Web page: http://www.hhs.se/
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    Related research

    Keywords: Seasoned equity offerings; Rights offerings; Private equity placements; Equity issue methods;

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