The Choice of Seasoned Equity Offerings Methods and Long Term Returns

55 Pages Posted: 9 Apr 2008 Last revised: 29 Mar 2010

See all articles by Balasingham Balachandran

Balasingham Balachandran

La Trobe Business School, La Trobe University; Financial Research Network (FIRN)

Robert W. Faff

University of Queensland; Bond University

Michael Theobald

University of Birmingham - Department of Accounting and Finance

Eswaran Velayutham

University of Southern Queensland

Patrick Verwijmeren

Erasmus University Rotterdam (EUR)

Date Written: April 18, 2008

Abstract

Seasoned equity offerings (SEOs) in the UK provide valuable choices to the issuer in terms of renounceability and control dilution. This is especially the case following the removal of the size restriction of £15 m on share placements to institutional investors in January 1996. We formulate a set of hypotheses from a quality-signalling perspective, affording an analysis of the key interrelations between renounceability, control dilution, shareholder takeup, and subscription price discount. We analyze SEOs from two perspectives: market reaction to the announcement, and identification of the factors driving the choice of issue type. Generally, we find strong support for our predictions - most notably that: high-quality firms signal quality via lower discounts and/or pre-renouncements; high-quality issuers have lower idiosyncratic risk; firms with widely dispersed ownership structures and firms with the largest market capitalizations will choose standalone placements with book-building; and firms with higher (lower) ownership concentration and lower (higher) shareholder takeup will choose fixed-price placements (rights offerings).

Keywords: Rights offerings, Private placements, Takeup, Renounceability, Private benefits of control, Book building, UK

JEL Classification: G14, D82, G32

Suggested Citation

Balachandran, Balasingham and Faff, Robert W. and Theobald, Michael F. and Velayutham, Eswaran and Verwijmeren, Patrick, The Choice of Seasoned Equity Offerings Methods and Long Term Returns (April 18, 2008). EFA 2009 Bergen Meetings Paper, Available at SSRN: https://ssrn.com/abstract=1118180 or http://dx.doi.org/10.2139/ssrn.1118180

Balasingham Balachandran (Contact Author)

La Trobe Business School, La Trobe University ( email )

La Trobe Business School
La Trobe University
Bundoora, Victoria 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

Bond University ( email )

Gold Coast, QLD 4229
Australia

Michael F. Theobald

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

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

Eswaran Velayutham

University of Southern Queensland ( email )

P.O.Box 238 Darling Heights
Toowoomba, Queensland 4350
Australia

Patrick Verwijmeren

Erasmus University Rotterdam (EUR) ( email )

Burgemeester Oudlaan 50
3000 DR Rotterdam, Zuid-Holland 3062PA
Netherlands

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
397
Abstract Views
2,722
rank
109,862
PlumX Metrics