Rights Offerings, Subscription Period, Shareholder Takeup and Liquidity

44 Pages Posted: 13 Jan 2010 Last revised: 15 Oct 2010

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

Tony van Zijl

Victoria University of Wellington - Faculty of Commerce and Administration

Abstract

We examine the role of shareholder takeup in rights offerings on the subscription period price reaction and liquidity. Our results indicate that takeup information is reflected in price adjustments over the subscription period and that quality-related information disclosed on the rights announcement date further impacts upon prices in this period. Higher shareholder takeup improves liquidity. We do find some evidence of inefficiencies in the adjustment process over the subscription period which, in part, is consistent with a model where markets are characterized by overconfident investors and which also articulates with takeup information arriving in the market.

Keywords: Rights offerings, takeup, subscription period, underwriting, liquidity, Australia

JEL Classification: G14, G32

Suggested Citation

Balachandran, Balasingham and Faff, Robert W. and Theobald, Michael F. and van Zijl, Tony, Rights Offerings, Subscription Period, Shareholder Takeup and Liquidity. Journal of Financial and Quantitative Analysis (JFQA), Forthcoming; Finance and Corporate Governance Conference 2010 Paper. Available at SSRN: https://ssrn.com/abstract=1534048

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)

Tony Van Zijl

Victoria University of Wellington - Faculty of Commerce and Administration ( email )

RH 606, Pipitea Campus, 6th Floor, Rutherford Hous
23 Lambton Quay
Wellington
Australia

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