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Effectiveness of pre-commitments on reducing asymmetrical information in equity issues

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  • J. Parreño
  • F. Ruiz
  • C. Casanueva

Abstract

The aim of this article is to find out whether or not consideration of significant shareholders announcement of intention to exercise subscription rights makes a difference in eliminating or reducing the effects of asymmetrical information in equity offerings with pre-emptive rights on the Spanish Stock Market. For the 17 years of equity issues covered, we find that the type of underwriting arrangements has not a statistically significant impact on the issues’ Excess Risk Adjusted Return. The main contribution of this study is the finding of a statistically significant negative impact on returns either when the significant shareholders indicate their intention not to subscribe or when not enough information is provided about their intention. We also find a statistically significant reinforcing negative effect on returns in the case of simultaneous lack of commitment on the part of significant shareholders, and non-underwritten equity issues.

Suggested Citation

  • J. Parreño & F. Ruiz & C. Casanueva, 2016. "Effectiveness of pre-commitments on reducing asymmetrical information in equity issues," Applied Economics Letters, Taylor & Francis Journals, vol. 23(12), pages 863-867, August.
    • Handle: RePEc:taf:apeclt:v:23:y:2016:i:12:p:863-867
    DOI: 10.1080/13504851.2015.1114573
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