Stock Market Liquidity and the Rights Offer Paradox

47 Pages Posted: 14 Oct 2009 Last revised: 17 Jun 2015

See all articles by Edith Ginglinger

Edith Ginglinger

Université Paris-Dauphine, PSL Research University

Laure Koenig

affiliation not provided to SSRN

Fabrice Riva

Université Paris-Dauphine, PSL Research University

Multiple version iconThere are 2 versions of this paper

Date Written: April 16, 2010

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, Laure and Riva, Fabrice, Stock Market Liquidity and the Rights Offer Paradox (April 16, 2010). Available at SSRN: https://ssrn.com/abstract=1485347 or http://dx.doi.org/10.2139/ssrn.1485347

Edith Ginglinger

Université Paris-Dauphine, PSL Research University ( email )

Place du Maréchal de Tassigny
Paris, Cedex 16 75775
France

Laure Koenig

affiliation not provided to SSRN ( email )

Fabrice Riva (Contact Author)

Université Paris-Dauphine, PSL Research University ( email )

Place du Maréchal de Tassigny
Paris, Cedex 16 75775
France

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