IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this article or follow this journal

Evidence on the determinants of equity issue method in the UK

  • B. M. Burton
  • D. M. Power
Registered author(s):

    Eckbo and Masulis (1992), Burton et al. (1999) and Armitage (1999) reported that the method used to issue new shares is one of the key determinants of the market reaction to seasoned equity offer announcements. This article develops this earlier line of research by examining a sample of 193 rights issues and 329 placings of shares made by UK firms between 1995 and 1996. It (i) details the relative popularity of rights and placings amongst London-quoted firms; (ii) compares the characteristics of the equity issues made under the different methods; (iii) examines variations in the attributes of firms which place their shares or offer them to existing investors via a rights issue and; (iv) uses logit analysis to investigate whether the determinants of offer method choice can be modelled accurately. A holdout sample of 59 placings and 29 rights issues is employed to examine the predictive ability of the logit model results. The evidence suggests that identifiable differences exist in both the size of the issue and the characteristics of the issuer, but that these differences provide only limited ability to predict equity issue methods accurately.

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

    File URL: http://www.tandfonline.com/doi/abs/10.1080/09603100110108127
    Download Restriction: Access to full text is restricted to subscribers.

    As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

    Article provided by Taylor & Francis Journals in its journal Applied Financial Economics.

    Volume (Year): 13 (2003)
    Issue (Month): 2 ()
    Pages: 145-157

    as
    in new window

    Handle: RePEc:taf:apfiec:v:13:y:2003:i:2:p:145-157
    Contact details of provider: Web page: http://www.tandfonline.com/RAFE20

    Order Information: Web: http://www.tandfonline.com/pricing/journal/RAFE20

    References listed on IDEAS
    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

    as in new window
    1. Bruce Burton & A. Alasdair Lonie & David Power, 1999. "Does the issue method influence the market reaction to seasoned equity offer announcements?," Applied Economics Letters, Taylor & Francis Journals, vol. 6(7), pages 459-462.
    2. Steven Fazzari & R. Glenn Hubbard & Bruce C. Petersen, 1987. "Financing Constraints and Corporate Investment," NBER Working Papers 2387, National Bureau of Economic Research, Inc.
    3. Loughran, Tim & Ritter, Jay R, 1995. " The New Issues Puzzle," Journal of Finance, American Finance Association, vol. 50(1), pages 23-51, March.
    4. Baxter, Nevins D & Cragg, John G, 1970. "Corporate Choice Among Long-Term Financing Instruments," The Review of Economics and Statistics, MIT Press, vol. 52(3), pages 225-35, August.
    5. Seth Armitage, 2000. "The direct costs of UK rights issues and open offers," European Financial Management, European Financial Management Association, vol. 6(1), pages 57-68.
    6. Myers, Stewart C. & Majluf, Nicholas S., 1984. "Corporate financing and investment decisions when firms have information that investors do not have," Journal of Financial Economics, Elsevier, vol. 13(2), pages 187-221, June.
    7. Bhagat, Sanjai, 1983. "The effect of pre-emptive right amendments on shareholder wealth," Journal of Financial Economics, Elsevier, vol. 12(3), pages 289-310, November.
    8. Masulis, Ronald W. & Korwar, Ashok N., 1986. "Seasoned equity offerings : An empirical investigation," Journal of Financial Economics, Elsevier, vol. 15(1-2), pages 91-118.
    9. Michael S. Long & Ileen B. Malitz, 1983. "Investment Patterns and Financial Leverage," NBER Working Papers 1145, National Bureau of Economic Research, Inc.
    10. Marsh, Paul, 1982. " The Choice between Equity and Debt: An Empirical Study," Journal of Finance, American Finance Association, vol. 37(1), pages 121-44, March.
    11. Titman, Sheridan & Wessels, Roberto, 1988. " The Determinants of Capital Structure Choice," Journal of Finance, American Finance Association, vol. 43(1), pages 1-19, March.
    12. Bayless, Mark & Chaplinsky, Susan, 1996. " Is There a Window of Opportunity for Seasoned Equity Issuance?," Journal of Finance, American Finance Association, vol. 51(1), pages 253-78, March.
    13. Taub, Allan J, 1975. "Determinants of the Firm's Capital Structure," The Review of Economics and Statistics, MIT Press, vol. 57(4), pages 410-16, November.
    14. Asquith, Paul & Mullins, David W, Jr, 1983. "The Impact of Initiating Dividend Payments on Shareholders' Wealth," The Journal of Business, University of Chicago Press, vol. 56(1), pages 77-96, January.
    15. Seth Armitage, 1998. "Seasoned equity offers and rights issues: a review of the evidence," The European Journal of Finance, Taylor & Francis Journals, vol. 4(1), pages 29-59.
    16. Myers, Stewart C. & Majluf, Nicolás S., 1945-, 1984. "Corporate financing and investment decisions when firms have information that investors do not have," Working papers 1523-84., Massachusetts Institute of Technology (MIT), Sloan School of Management.
    17. Choe, Hyuk & Masulis, Ronald W. & Nanda, Vikram, 1993. "Common stock offerings across the business cycle : Theory and evidence," Journal of Empirical Finance, Elsevier, vol. 1(1), pages 3-31, June.
    18. Asquith, Paul & Mullins, David Jr., 1986. "Equity issues and offering dilution," Journal of Financial Economics, Elsevier, vol. 15(1-2), pages 61-89.
    19. Eckbo, B. Espen & Masulis, Ronald W., 1992. "Adverse selection and the rights offer paradox," Journal of Financial Economics, Elsevier, vol. 32(3), pages 293-332, December.
    20. Denis, David J., 1994. "Investment Opportunities and the Market Reaction to Equity Offerings," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 29(02), pages 159-177, June.
    Full references (including those not matched with items on IDEAS)

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    When requesting a correction, please mention this item's handle: RePEc:taf:apfiec:v:13:y:2003:i:2:p:145-157. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Michael McNulty)

    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.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with 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 profile, as there may be some citations waiting for confirmation.

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

    This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.