Rights Issues, Operating Performance and Management Overconfidence: UK Evidence

Abstract:     
Prior studies have reported that companies performing rights issues in the UK exhibit a significant underperformance in the period following the offering. Using a sample of rights issues covering the period 1988-1998, this study suggests that this long-term underperformance is related to a significant post-offering decline in companies' operating performance compared to their industrial benchmarks. These results are mostly robust in the case of fast-growing firms with overoptimistic management. Moreover, an investigation in the pre- and post-offering performance of issuers also indicate that managers issue equity when securities are highly overvalued. This evidence is consistent with both the asymmetry of information and window of opportunities hypotheses.

Number of Pages in PDF File: 49

Keywords: Rights issues, Equity offerings, Long-term performance, Operating performance, Management Overconfidence

JEL Classification: G14, G32

working papers series