The Choice between Rights-Preserving Issue Methods: Regulatory and Financial Aspects of Issuing Seasoned Equity in the UK

A.G. Korteweg, L.D.R. Renneboog

Research output: Working paperDiscussion paperOther research output

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Abstract

This paper examines the choice between two rights-preserving issue methods of seasoned equity offers in the UK as well as the factors determining the offer price and stock market announcement reactions.Firstly, equity issues in the UK are underwritten for different reasons than in other countries.Only severely financially distressed companies choose not to underwrite their share offer. Second, the average announcement reaction to non-underwritten issues is much more negative than to underwritten issues.This contrasts sharply with the results found in other countries, such as the US.Third, underwritten rights issues experience a negative announcement return whereas the share price reaction to underwritten open offers is positive.The choice of issue method and the subsequent announcement reaction are explained by directors' and institutional investors' interests, growth opportunities, stock market uncertainty and liquidity in the market for rights.
Original languageEnglish
Place of PublicationTilburg
PublisherFinance
Number of pages41
Volume2002-93
Publication statusPublished - 2002

Publication series

NameCentER Discussion Paper
Volume2002-93

Fingerprint

Equity
Announcement
Stock market
Equity issues
Share prices
Growth opportunities
Seasoned equity offer
Institutional investors
Price reaction
Announcement returns
Factors
Rights issues
Market uncertainty
Market liquidity

Keywords

  • capital structure
  • equity capital

Cite this

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The Choice between Rights-Preserving Issue Methods : Regulatory and Financial Aspects of Issuing Seasoned Equity in the UK. / Korteweg, A.G.; Renneboog, L.D.R.

Tilburg : Finance, 2002. (CentER Discussion Paper; Vol. 2002-93).

Research output: Working paperDiscussion paperOther research output

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