IDEAS home Printed from https://ideas.repec.org/a/sbr/abstra/v60y2008i3p224-248.html
   My bibliography  Save this article

Bounded Rationality, Rights Offerings, and Optimal Subscription Prices

Author

Listed:
  • Wolfgang Breuer

Abstract

In an asymmetric information context with bounded rationality, investors’ loss aversion, mental accounting and buy-and-hold behavior may create opportunities for good-type firms to signal their project quality by choosing lower issuance prices at rights offerings than bad-type firms do. Bad firms are prevented from imitating better ones, as their doing so would induce reference price violations with a loss in utility that would exceed any corresponding additional proceeds from the sale of subscription rights. As a by-product, we have, on average, found positive announcement effects from rights offerings. Our behavioral approach may help to explain differing empirical findings across countries and can thus be interpreted as a (quite rudimentary) contribution to the newly developing field of “cultural corporate finance”.

Suggested Citation

  • Wolfgang Breuer, 2008. "Bounded Rationality, Rights Offerings, and Optimal Subscription Prices," Schmalenbach Business Review (sbr), LMU Munich School of Management, vol. 60(3), pages 224-248, July.
  • Handle: RePEc:sbr:abstra:v:60:y:2008:i:3:p:224-248
    as

    Download full text from publisher

    File URL: http://www.vhb.de/sbr/pdfarchive.html
    Download Restriction: no
    ---><---

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Narcis Tulbure, 2015. "Choice In Context: Rationality, Contingency And Risk In The Dividend Policy," Risk in Contemporary Economy, "Dunarea de Jos" University of Galati, Faculty of Economics and Business Administration, pages 388-395.
    2. Nils Bobenhausen & Wolfgang Breuer & Astrid Salzmann, 2020. "Determinants of discounts in equity rights issues: An international comparison," Review of Financial Economics, John Wiley & Sons, vol. 38(2), pages 300-320, April.

    More about this item

    Keywords

    Bounded Rationality; Cultural Corporate Finance; Loss Aversion; Mental Accounting; Rights Issues; Signalling;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:sbr:abstra:v:60:y:2008:i:3:p:224-248. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: sbr (email available below). General contact details of provider: https://edirc.repec.org/data/fbmunde.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.