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

The choice between rights offerings and private equity placements

  • Cronqvist, Henrik

    ()

    (The Ohio State University)

  • Nilsson, Mattias

    ()

    (Stockholm Institute for Financial Research (SIFR))

We develop and test a nested logit model to examine how firms choose between a rights offering and a private equity placement. We find that family-controlled firms avoid issue methods that dilute control benefits or subject them to more monitoring, in particular when the family’s control margin is small and the wedge between votes and capital is large. Control considerations also affect security design in equity issues. We also find that firms use private placements to reduce contracting and ex post holdup costs in new product market relationships. Finally, we find that firms with higher asymmetric information about firm value are more likely to involve underwriter certification in a rights offering, and to choose a private placement when information asymmetries are extreme.

To our knowledge, this item is not available for download. To find whether it is available, there are three options:
1. Check below under "Related research" whether another version of this item is available online.
2. Check on the provider's web page whether it is in fact available.
3. Perform a search for a similarly titled item that would be available.

Paper provided by Stockholm School of Economics in its series SSE/EFI Working Paper Series in Economics and Finance with number 0452.

as
in new window

Length: 43 pages
Date of creation: 08 Jun 2001
Date of revision: 21 Jan 2002
Publication status: Forthcoming in Journal of Financial Economics.
Handle: RePEc:hhs:hastef:0452
Contact details of provider: Postal: The Economic Research Institute, Stockholm School of Economics, P.O. Box 6501, 113 83 Stockholm, Sweden
Phone: +46-(0)8-736 90 00
Fax: +46-(0)8-31 01 57
Web page: http://www.hhs.se/Email:


More information through EDIRC

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. Zingales, Luigi, 1995. "Insider Ownership and the Decision to Go Public," Review of Economic Studies, Wiley Blackwell, vol. 62(3), pages 425-48, July.
  2. 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.
  3. Smith, C.W. & Watts, R.L., 1992. "The Investment Oppotunity set and Corporate Financing, Dividend and Compensation Policies," Papers 92-02, Rochester, Business - Financial Research and Policy Studies.
  4. Aghion, Philippe & Tirole, Jean, 1994. "On the Management of Innovation," IDEI Working Papers 36, Institut d'Économie Industrielle (IDEI), Toulouse.
  5. Randolph P. Beatty & Jay R. Ritter, . "Investment Banking, Reputation and the Underpricing of Initial Public Offerings," Rodney L. White Center for Financial Research Working Papers 02-85, Wharton School Rodney L. White Center for Financial Research.
  6. Shleifer, Andrei & Vishny, Robert W., 1989. "Management entrenchment : The case of manager-specific investments," Journal of Financial Economics, Elsevier, vol. 25(1), pages 123-139, November.
  7. Helwege, Jean & Liang, Nellie, 1996. "Is there a pecking order? Evidence from a panel of IPO firms," Journal of Financial Economics, Elsevier, vol. 40(3), pages 429-458, March.
  8. Barclay, Michael J. & Holderness, Clifford G., 1989. "Private benefits from control of public corporations," Journal of Financial Economics, Elsevier, vol. 25(2), pages 371-395, December.
  9. Klein, Benjamin & Crawford, Robert G & Alchian, Armen A, 1978. "Vertical Integration, Appropriable Rents, and the Competitive Contracting Process," Journal of Law and Economics, University of Chicago Press, vol. 21(2), pages 297-326, October.
  10. Hansen, Robert S & Pinkerton, John M, 1982. " Direct Equity Financing: A Resolution of a Paradox," Journal of Finance, American Finance Association, vol. 37(3), pages 651-65, June.
  11. Kovenock, Dan & Phillips, Gordon, 1995. "Capital Structure and Product-Market Rivalry: How Do We Reconcile Theory and Evidence?," American Economic Review, American Economic Association, vol. 85(2), pages 403-08, May.
  12. Claessens, Stijn & Djankov, Simeon & Lang, Larry H. P., 2000. "The separation of ownership and control in East Asian Corporations," Journal of Financial Economics, Elsevier, vol. 58(1-2), pages 81-112.
  13. Cronqvist, Henrik & Nilsson, Mattias, 2003. "Agency Costs of Controlling Minority Shareholders," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 38(04), pages 695-719, December.
  14. 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.
  15. Gilson, Stuart C. & John, Kose & Lang, Larry H. P., 1990. "Troubled debt restructurings*1: An empirical study of private reorganization of firms in default," Journal of Financial Economics, Elsevier, vol. 27(2), pages 315-353, October.
  16. Shleifer, Andrei & Vishny, Robert W., 1986. "Large Shareholders and Corporate Control," Scholarly Articles 3606237, Harvard University Department of Economics.
  17. Lucian Arye Bebchuk, 1999. "A Rent-Protection Theory of Corporate Ownership and Control," NBER Working Papers 7203, National Bureau of Economic Research, Inc.
  18. Aghion, Philippe & Tirole, Jean, 1994. "The Management of Innovation," The Quarterly Journal of Economics, MIT Press, vol. 109(4), pages 1185-1209, November.
  19. Rafael La Porta & Florencio Lopez-De-Silanes & Andrei Shleifer, 1999. "Corporate Ownership Around the World," Journal of Finance, American Finance Association, vol. 54(2), pages 471-517, 04.
  20. Hausman, Jerry & McFadden, Daniel, 1984. "Specification Tests for the Multinomial Logit Model," Econometrica, Econometric Society, vol. 52(5), pages 1219-40, September.
  21. Richard J. Zeckhauser & John Pound, 1990. "Are Large Shareholders Effective Monitors? An Investigation of Share Ownership and Corporate Performance," NBER Chapters, in: Asymmetric Information, Corporate Finance, and Investment, pages 149-180 National Bureau of Economic Research, Inc.
  22. Stewart C. Myers & Nicholas S. Majluf, 1984. "Corporate Financing and Investment Decisions When Firms Have InformationThat Investors Do Not Have," NBER Working Papers 1396, National Bureau of Economic Research, Inc.
  23. Smith, Clifford Jr., 1977. "Alternative methods for raising capital : Rights versus underwritten offerings," Journal of Financial Economics, Elsevier, vol. 5(3), pages 273-307, December.
  24. Robert S. Hansen, 1988. "The Demise of the Rights Issue," Review of Financial Studies, Society for Financial Studies, vol. 1(3), pages 289-309.
  25. Alexander Dyck & Luigi Zingales, 2004. "Private Benefits of Control: An International Comparison," Journal of Finance, American Finance Association, vol. 59(2), pages 537-600, 04.
  26. Wu, YiLin, 2004. "The choice of equity-selling mechanisms," Journal of Financial Economics, Elsevier, vol. 74(1), pages 93-119, October.
  27. Kato, Kiyoshi & Schallheim, James S., 1993. "Private equity financings in Japan and corporate grouping (keiretsu)," Pacific-Basin Finance Journal, Elsevier, vol. 1(3), pages 287-307, September.
  28. Philip E. Berger & Eli Ofek & David Yermack, 1996. "Managerial Entrenchment and Capital Structure Decisions," New York University, Leonard N. Stern School Finance Department Working Paper Seires 96-14, New York University, Leonard N. Stern School of Business-.
  29. 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.
  30. Rafael LaPorta & Florencio Lopez-de-Silanes & Andrei Shleifer & Robert W. Vishny, . "Law and Finance," Working Paper 19451, Harvard University OpenScholar.
  31. Leland, Hayne E & Pyle, David H, 1977. "Informational Asymmetries, Financial Structure, and Financial Intermediation," Journal of Finance, American Finance Association, vol. 32(2), pages 371-87, May.
  32. Hansen, Robert S & Torregrosa, Paul, 1992. " Underwriter Compensation and Corporate Monitoring," Journal of Finance, American Finance Association, vol. 47(4), pages 1537-55, September.
  33. A. Craig MacKinlay, 1997. "Event Studies in Economics and Finance," Journal of Economic Literature, American Economic Association, vol. 35(1), pages 13-39, March.
  34. Jung, Kooyul & Yong-Cheol, Kim & Stulz, Rene M., 1996. "Timing, investment opportunities, managerial discretion, and the security issue decision," Journal of Financial Economics, Elsevier, vol. 42(2), pages 159-185, October.
  35. Daniel McFadden, 1977. "Modelling the Choice of Residential Location," Cowles Foundation Discussion Papers 477, Cowles Foundation for Research in Economics, Yale University.
  36. Morck, Randall & Shleifer, Andrei & Vishny, Robert W., 1988. "Management ownership and market valuation : An empirical analysis," Journal of Financial Economics, Elsevier, vol. 20(1-2), pages 293-315, January.
  37. B[oslash]hren, [Oslash]yvind & Eckbo, B. Espen & Michalsen, Dag, 1997. "Why underwrite rights offerings? Some new evidence," Journal of Financial Economics, Elsevier, vol. 46(2), pages 223-261, November.
  38. Jensen, Michael C, 1986. "Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers," American Economic Review, American Economic Association, vol. 76(2), pages 323-29, May.
  39. Small, Kenneth A & Hsiao, Cheng, 1985. "Multinomial Logit Specification Tests," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 26(3), pages 619-27, October.
  40. Lee, Inmoo, 1997. " Do Firms Knowingly Sell Overvalued Equity?," Journal of Finance, American Finance Association, vol. 52(4), pages 1439-66, September.
  41. Booth, James R. & Smith, Richard II, 1986. "Capital raising, underwriting and the certification hypothesis," Journal of Financial Economics, Elsevier, vol. 15(1-2), pages 261-281.
  42. Hertzel, Michael G & Smith, Richard L, 1993. " Market Discounts and Shareholder Gains for Placing Equity Privately," Journal of Finance, American Finance Association, vol. 48(2), pages 459-85, June.
  43. Maksimovic, Vojislav & Titman, Sheridan, 1991. "Financial Policy and Reputation for Product Quality," Review of Financial Studies, Society for Financial Studies, vol. 4(1), pages 175-200.
  44. 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.
  45. Stulz, ReneM., 1988. "Managerial control of voting rights : Financing policies and the market for corporate control," Journal of Financial Economics, Elsevier, vol. 20(1-2), pages 25-54, January.
  46. Jeffrey W. Allen & Gordon M. Phillips, 2000. "Corporate Equity Ownership, Strategic Alliances, and Product Market Relationships," Journal of Finance, American Finance Association, vol. 55(6), pages 2791-2815, December.
  47. Arnold W. Sametz, 1964. "Trends In The Volume And Composition Of Equity Finance," Journal of Finance, American Finance Association, vol. 19(3), pages 450-469, 09.
  48. Kothare, Meeta, 1997. "The effects of equity issues on ownership structure and stock liquidity: A comparison of rights and public offerings," Journal of Financial Economics, Elsevier, vol. 43(1), pages 131-148, January.
  49. Pisano, Gary P, 1989. "Using Equity Participation to Support Exchange: Evidence from the Biotechnology Industry," Journal of Law, Economics and Organization, Oxford University Press, vol. 5(1), pages 109-26, Spring.
  50. Williamson, Oliver E, 1979. "Transaction-Cost Economics: The Governance of Contractural Relations," Journal of Law and Economics, University of Chicago Press, vol. 22(2), pages 233-61, October.
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:hhs:hastef:0452. 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: (Helena Lundin)

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.