Stock Market Liquidity and the Rights Offer Paradox

28 Pages Posted: 14 Mar 2009 Last revised: 17 Jun 2015

See all articles by Edith Ginglinger

Edith Ginglinger

Université Paris-Dauphine, PSL Research University

Laure Koenig-Matsoukis

Université Paris-Dauphine

Fabrice Riva

Université Paris-Dauphine, PSL Research University

Multiple version iconThere are 2 versions of this paper

Date Written: March 13, 2009

Abstract

This paper contributes to the resolution of the rights offer paradox, using a database of French SEOs. We first document higher direct flotation costs, but also improved stock market liquidity after public offerings and standby rights relative to uninsured rights. We find that blockholder renouncements to subscribe to new shares and stock market liquidity are important determinants of flotation method choice. After controlling for endogeneity in the choice of flotation method, we find that public offerings are cost effective and more liquidity improving than standby rights whereas an uninsured rights offering is the best choice for low liquidity, closely held firms. Our results provide new insights as to why firms choose public offerings despite apparently higher costs.

Keywords: Security offering, SEO, flotation method, flotation costs, rights issues, public offerings, liquidity, bid-ask spread

JEL Classification: G32

Suggested Citation

Ginglinger, Edith and Koenig-Matsoukis, Laure and Riva, Fabrice, Stock Market Liquidity and the Rights Offer Paradox (March 13, 2009). 22nd Australasian Finance and Banking Conference 2009. Available at SSRN: https://ssrn.com/abstract=1359094 or http://dx.doi.org/10.2139/ssrn.1359094

Edith Ginglinger (Contact Author)

Université Paris-Dauphine, PSL Research University ( email )

Place du Maréchal de Tassigny
Paris, Cedex 16 75775
France

Laure Koenig-Matsoukis

Université Paris-Dauphine ( email )

Place du Maréchal de Lattre de Tassigny
Paris, 75775
France

Fabrice Riva

Université Paris-Dauphine, PSL Research University ( email )

Place du Maréchal de Tassigny
Paris, Cedex 16 75775
France

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