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Explanations of cycles in seasoned equity offerings: An examination of the choice between rights issues and private placements

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  • Melia, Adrian
  • Chan, Howard
  • Docherty, Paul
  • Easton, Steve

Abstract

A feature of the Australian equity market is that, unlike all other equity markets, private placements and rights issues are used more frequently than public offerings. This study examines time-variation in these types of seasoned equity offerings (SEOs), to examine choice between them, and to enhance our understanding of the reasons for time-variation in SEOs. Time-variation in information asymmetry, the demand for capital, and investment sentiment, together with market timing, are explanations for this cyclicality in SEO issuance; although the drivers of time-variation differ across SEO types. Time-variation in the demand for capital has a statistically and economically significant impact on time-variation in private placements, while time-variation in investor sentiment has a statistically and economically significant impact on the prevalence of rights issues. Market timing and information asymmetry do not have explanatory power for variation in SEO activity.

Suggested Citation

  • Melia, Adrian & Chan, Howard & Docherty, Paul & Easton, Steve, 2018. "Explanations of cycles in seasoned equity offerings: An examination of the choice between rights issues and private placements," Pacific-Basin Finance Journal, Elsevier, vol. 50(C), pages 16-25.
    • Handle: RePEc:eee:pacfin:v:50:y:2018:i:c:p:16-25
    DOI: 10.1016/j.pacfin.2018.02.006
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    Cited by:

    1. Balachandran, Balasingham & Williams, Barry, 2018. "Effective governance, financial markets, financial institutions & crises," Pacific-Basin Finance Journal, Elsevier, vol. 50(C), pages 1-15.
    2. Gao, Shenghao & Liu, Jinzhao & Zhang, Qi & Zhou, Jun, 2023. "Stock hyping before auction-style SEOs: Are primary market investors misled?," International Review of Economics & Finance, Elsevier, vol. 88(C), pages 123-140.
    3. Liu, Jinzhao & Gao, Shenghao & Zhou, Jun, 2019. "Clustering and discounting in auction-style SEOs – Evidence from China," Pacific-Basin Finance Journal, Elsevier, vol. 57(C).
    4. Dang, Man & Puwanenthiren, Premkanth & Truong, Cameron & Henry, Darren & Vo, Xuan Vinh, 2022. "Audit quality and seasoned equity offerings methods," International Review of Financial Analysis, Elsevier, vol. 83(C).
    5. Gao, Xuechen & Hsu, Yuan-Teng & Wang, Xuewu (Wesley) & Yuan, Weici, 2022. "The choice of flotation methods: Evidence from Chinese seasoned equity offerings," Journal of International Money and Finance, Elsevier, vol. 129(C).

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    More about this item

    Keywords

    SEO; Rights issue; Private placement; Information asymmetry; Demand for capital; Investor sentiment; Market timing;
    All these keywords.

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets

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