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

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  • Eckbo, B. Espen

    ()
    (Tuck School of Business, Dartmouth College)

  • Norli, Øyvind

    ()
    (Rotman School of Management, University of Toronto)

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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Bibliographic Info

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

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

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Postal: NHH, Department of Business and Management Science, Helleveien 30, N-5045 Bergen, Norway
Phone: +47 55 95 92 93
Fax: +47 55 95 96 50
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Web page: http://www.nhh.no/en/research-faculty/department-of-business-and-management-science.aspx
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Keywords: Seasoned-equity selling mechanism; Sequential pooling equilibrium; Oslo Stock Exchange; Flotation methods;

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Cited by:
  1. Miglo, Anton, 2010. "The Pecking Order, Trade-off, Signaling, and Market-Timing Theories of Capital Structure: a Review," MPRA Paper 46691, University Library of Munich, Germany, revised 2013.

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