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The choice of seasoned-equity selling mechanism: Theory and evidence

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Author Info
Eckbo, B. Espen () (Tuck School of Business, Dartmouth College)
Norli, Øyvind () (Rotman School of Management, University of Toronto)

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Abstract

Extending the Myers and Majluf (1984) framework, we present a model for the choice of seasoned-equity selling mechanism. A sequential pooling equilibrium exists which implies a positive market reaction to certain flotation strategies. We examine the model implications using the market reaction to issues on the Oslo Stock Exchange using the full range of flotation methods. The average market reaction is non-negative across all methods, and significantly positive for both rights offerings and private placements, as predicted. We also show that average long-run abnormal stock returns to OSE issuers are indistinguishable from zero, supporting the market rationality assumption underpinning the flotation game.

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Publisher Info
Paper provided by Department of Finance and Management Science, Norwegian School of Economics and Business Administration in its series Discussion Papers with number 2004/17.

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Length: 54 pages
Date of creation: 17 Dec 2004
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Handle: RePEc:hhs:nhhfms:2004_017

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Postal: NHH, Department of Finance and Management Science, Helleveien 30, N-5045 Bergen, Norway
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Related research
Keywords: Seasoned-equity selling mechanism; Sequential pooling equilibrium; Oslo Stock Exchange; Flotation methods;

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Find related papers by JEL classification:
D50 - Microeconomics - - General Equilibrium and Disequilibrium - - - General

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References listed on IDEAS
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