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Information asymmetry and the choice between rights issue and private placement of equity

Author

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  • Bipin Sony

    (BASE University)

  • Saumitra Bhadurib

    (Madras School of Economics)

Abstract

This study examines the role of information asymmetry in the choice between rights issue and private equity placement from an important emerging market- India. In the post IPO scenario, Indian firms issue equity mainly through private placements as well as rights issues and follow-on public offers are negligible. We argue that problems associated with information asymmetry trickles down to all levels of equity issues. The outcome of this empirical exercise shows that rights issuers typically face lesser degree of information asymmetry. Further, private placements are chosen by firms facing higher information problems to circumvent information costs. The results remain invariant even after segregating the qualified institutional placements from private equity placement as the firms with information disadvantage choose to place equity privately.

Suggested Citation

  • Bipin Sony & Saumitra Bhadurib, 2020. "Information asymmetry and the choice between rights issue and private placement of equity," BASE University Working Papers 01/2020, BASE University, Bengaluru, India.
    • Handle: RePEc:alj:wpaper:01/2020
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    More about this item

    Keywords

    Capital structure; Information Asymmetry; Rights Issue; Private placement of Equity; Emerging economy;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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