The Demise of the Rights Issue

The Review of Financial Studies, Vol. 1, No. 3, pp. 289-309, Fall 1989

21 Pages Posted: 18 Aug 2011

See all articles by Robert S. Hansen

Robert S. Hansen

Tulane University - A.B. Freeman School of Business

Date Written: September 1, 1988

Abstract

This article suggests that the lack of use of rights offerings in the United States, a phenomenon referred to as the equity underwriting paradox, can be explained by transaction costs. A sample of underwritten rights offerings provides support for the explanation. Firms making underwritten rights offerings paid lower underwriter fees but incurred significantly larger price drops just prior to the offering than did firms making underwritten offerings. Further analysis reveals that the underwritten-rights-offering price concessions are a form of transaction cost that is not found in underwritten public offerings.

Suggested Citation

Hansen, Robert S., The Demise of the Rights Issue (September 1, 1988). The Review of Financial Studies, Vol. 1, No. 3, pp. 289-309, Fall 1989, Available at SSRN: https://ssrn.com/abstract=1893745

Robert S. Hansen (Contact Author)

Tulane University - A.B. Freeman School of Business ( email )

Goldring/Woldenberg Hall
7 McAllister Blvd.
New Orleans, LA 70118
United States
504-865-5624 (Phone)

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