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Why are rights offers in Hong Kong so different?

  • Lee, Chin-Chong
  • Poon, Wai-Ching
  • Sinnakkannu, Jothee

Investors react adversely to the announcements of rights offers in Hong Kong and the abnormal return of rights offers on the announcement day is −12.10%. After taking price discounts, underwriting fees and abnormal returns into consideration, the total direct and indirect costs of the seasoned issuers of rights offers are tremendously high. The cross-sectional analysis shows that investors react more adversely to the issuers of rights offers with lower growth prospects, higher free cash flows, larger issue scales, lower pre-issuance stock run up and higher debt capacity. Our empirical result also indicates that cash-rich firms with few investment opportunities and firms with poor quality in terms of lower market-to-book ratio and larger price discounts choose rights offers over private equity placements. All this evidence supports that agency costs and private benefits of control matter in equity financing.

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File URL: http://www.sciencedirect.com/science/article/pii/S0927538X13000929
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Article provided by Elsevier in its journal Pacific-Basin Finance Journal.

Volume (Year): 26 (2014)
Issue (Month): C ()
Pages: 176-197

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Handle: RePEc:eee:pacfin:v:26:y:2014:i:c:p:176-197
DOI: 10.1016/j.pacfin.2013.12.004
Contact details of provider: Web page: http://www.elsevier.com/locate/pacfin

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