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The choice of seasoned-equity selling mechanism: Theory and evidence

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Abstract

Extending the Myers and Majluf (1984) framework, we present a model for the choice of seasoned-equity selling mechanism. A sequential pooling equilibrium exists which implies a positive market reaction to certain flotation strategies. We examine the model implications using the market reaction to issues on the Oslo Stock Exchange using the full range of flotation methods. The average market reaction is non-negative across all methods, and significantly positive for both rights offerings and private placements, as predicted. We also show that average long-run abnormal stock returns to OSE issuers are indistinguishable from zero, supporting the market rationality assumption underpinning the flotation game.

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  • Eckbo, B. Espen & Norli, Øyvind, 2004. "The choice of seasoned-equity selling mechanism: Theory and evidence," Discussion Papers 2004/17, Norwegian School of Economics, Department of Business and Management Science.
    • Handle: RePEc:hhs:nhhfms:2004_017
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    Cited by:

    1. Miglo, Anton, 2010. "The Pecking Order, Trade-off, Signaling, and Market-Timing Theories of Capital Structure: a Review," MPRA Paper 46691, University Library of Munich, Germany, revised 2013.
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    3. Holderness, Clifford G., 2018. "Equity issuances and agency costs: The telling story of shareholder approval around the world," Journal of Financial Economics, Elsevier, vol. 129(3), pages 415-439.
    4. Anjali Tuli, 2016. "Firms’ Choice of Seasoned Equity Issuance Method—Taking Private or Non-private Route," Global Business Review, International Management Institute, vol. 17(2), pages 400-410, April.

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    More about this item

    Keywords

    Seasoned-equity selling mechanism; Sequential pooling equilibrium; Oslo Stock Exchange; Flotation methods;
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    JEL classification:

    • D50 - Microeconomics - - General Equilibrium and Disequilibrium - - - General

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