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Rights offerings, trading, and regulation: A global perspective

Author

Listed:
  • Massimo Massa
  • Theo Vermaelen
  • Moqi Xu

Abstract

We study rights offerings using a sample of 8,238 rights offers announced during 1995-2008 in 69 countries. Although shareholders prefer having the option to trade rights, issuers deliberately restrict tradability in 38% of the offerings. We argue that firms restrict rights trading to avoid the execution risk associated with strict prospectus requirements, a prolonged and uncertain transaction process, and the potentially negative information signaled via the price of traded rights. In line with this argument, we find that issuers restricting tradability are those with more to lose from reduced participation or that are more likely to face execution risk.

Suggested Citation

  • Massimo Massa & Theo Vermaelen & Moqi Xu, 2013. "Rights offerings, trading, and regulation: A global perspective," FMG Discussion Papers dp727, Financial Markets Group.
    • Handle: RePEc:fmg:fmgdps:dp727
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    File URL: http://www.lse.ac.uk/fmg/workingPapers/discussionPapers/fmgdps/DP727-final.pdf
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    1. repec:dau:papers:123456789/15219 is not listed on IDEAS
    2. Gupta, Manu & Prakash, Puneet & Rangan, Nanda K., 2017. "Determinants of underwriting spreads internationally: Evidence from SEOs," Journal of Multinational Financial Management, Elsevier, vol. 41(C), pages 1-22.
    3. David, Thomas & Ginglinger, Edith, 2016. "When cutting dividends is not bad news: The case of optional stock dividends," Journal of Corporate Finance, Elsevier, vol. 40(C), pages 174-191.
    4. Riccardo Ferretti & Pierpaolo Pattitoni & Alex Castelli, 2019. "Security-voting structure and equity financing in the banking sector: ‘one head-one vote’ versus ‘one share-one vote’," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 23(4), pages 1063-1097, December.
    5. Holderness, Clifford G. & Pontiff, Jeffrey, 2016. "Shareholder nonparticipation in valuable rights offerings: New findings for an old puzzle," Journal of Financial Economics, Elsevier, vol. 120(2), pages 252-268.
    6. Lee, Chin-Chong & Poon, Wai-Ching, 2018. "Wealth transfers in rights offerings and the protective instruments," Journal of Contemporary Accounting and Economics, Elsevier, vol. 14(3), pages 335-357.
    7. Hue Hwa Au Yong & Christine Brown & Choy Yeing (Chloe) Ho & Chander Shekhar, 2021. "Rights issues: Retail shareholders and their participation decisions," International Review of Finance, International Review of Finance Ltd., vol. 21(3), pages 917-944, September.
    8. Dang, Man & Puwanenthiren, Premkanth & Thai, Hong An & Mazur, Mieszko & Jones, Edward & Vo, Xuan Vinh, 2021. "Policy uncertainty and seasoned equity offerings methods," International Review of Financial Analysis, Elsevier, vol. 77(C).

    More about this item

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • K22 - Law and Economics - - Regulation and Business Law - - - Business and Securities Law

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