Investor Protection and Choice of Share Issuance Mechanism

44 Pages Posted: 21 Jun 2010 Last revised: 27 Jan 2013

See all articles by R. David McLean

R. David McLean

Georgetown University - Department of Finance

Tianyu Zhang

City University of Hong Kong (CityUHK) - Department of Accountancy

Mengxin Zhao

Securities and Exchange Commission (SEC)

Date Written: April 1, 2011

Abstract

Legal investor protection is associated with how firms choose to issue shares. The likelihood of private placements relative to rights offerings increases with investor protection, as does the likelihood of public offerings relative to both private placements and rights offerings. These findings are consistent with investor protection benefitting minority investors and reducing the benefits of control. Commonly used measures of equity market development are not associated with how shares are issued, nor are measures of market inefficiency. Our study helps shed light on several current issues in the literature, including choice of share issuance mechanism, how investor protection promotes finance, whether investor protection reduces ownership concentration, and the rights offering paradox.

Keywords: Seasoned equity offerings, Rights offerings, Private placements, Mergers, Investor protection, Equity market development, Operating performance

JEL Classification: G30, G31, G32, G34

Suggested Citation

McLean, R. David and Zhang, Tianyu and Zhao, Mengxin, Investor Protection and Choice of Share Issuance Mechanism (April 1, 2011). AFFI - French Finance Association , International Conference of the French Finance Association (AFFI) 2011. Available at SSRN: https://ssrn.com/abstract=1627701 or http://dx.doi.org/10.2139/ssrn.1627701

R. David McLean (Contact Author)

Georgetown University - Department of Finance ( email )

3700 O Street, NW
Washington, DC Washington DC 20057
United States

Tianyu Zhang

City University of Hong Kong (CityUHK) - Department of Accountancy ( email )

83 Tat Chee Avenue
Kowloon
Hong Kong

Mengxin Zhao

Securities and Exchange Commission (SEC) ( email )

450 Fifth Street, NW
Washington, DC 20549-1105
United States

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