Rights Offerings, Takeup, Renounceability, and Underwriting Status

40 Pages Posted: 17 Dec 2007 Last revised: 9 Apr 2008

See all articles by Balasingham Balachandran

Balasingham Balachandran

La Trobe University - School of Economics and Finance; Financial Research Network (FIRN)

Robert W. Faff

University of Queensland

Michael Theobald

University of Birmingham - Department of Accounting and Finance

Abstract

Rights offerings in Australia provide valuable choices to the issuer in terms of both underwriting and renounceability. We formulate a set of hypotheses from a quality-signalling perspective, affording an analysis of the key interrelations between quality, underwriting status, renounceability, takeup, and subscription price discount. We analyse rights offerings from two perspectives: market reaction to rights announcements and identification of the factors driving the choice of issue type. Evidence strongly supports the relation between quality signals and issue type. Using a robustly constructed takeup variable, we establish empirical relations between takeup, underwriting status, and renounceability that differ significantly from those previously reported, but which are consistent with the hypotheses developed in this paper.

Keywords: Rights offerings, Takeup, Renounceability, Underwriting, Australia

JEL Classification: G12, G14, G15, G24, G32

Suggested Citation

Balachandran, Balasingham and Faff, Robert W. and Theobald, Michael F., Rights Offerings, Takeup, Renounceability, and Underwriting Status. Journal of Financial Economics (JFE), 2008. Available at SSRN: https://ssrn.com/abstract=1033525

Balasingham Balachandran (Contact Author)

La Trobe University - School of Economics and Finance ( email )

La Trobe University
Bundoora, Vic, 3086
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Robert W. Faff

University of Queensland ( email )

St Lucia
Brisbane, Queensland 4072
Australia

Michael F. Theobald

University of Birmingham - Department of Accounting and Finance ( email )

Birmingham B15 2TT
United Kingdom
0121 414 6678 (Fax)

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