Rights Offerings, Trading, and Regulation: A Global Perspective

45 Pages Posted: 17 Oct 2013

See all articles by Massimo Massa

Massimo Massa

INSEAD - Finance

Theo Vermaelen

INSEAD - Finance

Moqi Groen-Xu

London School of Economics & Political Science (LSE)

Date Written: December 13, 2013

Abstract

We study right offerings around the world, using a sample of 8,238 rights offers announced during 1995-2008 in 69 countries. Although shareholders prefer having the option to trade rights, issuers deliberately restrict tradability in 38% of the offerings. We argue that firms restrict rights trading in order to avoid the execution risk associated with strict prospectus requirements, a prolonged and uncertain transaction process, and the potentially negative information signalled via the price of traded rights. In line with this argument, we find that issuers restricting tradability are those with more to lose from reduced participation or that are more likely to face execution risk.

Keywords: rights issue, seasoned equity offering, liquidity of rights

JEL Classification: G14, G32, G38, K22

Suggested Citation

Massa, Massimo and Vermaelen, Theo and Groen-Xu, Moqi, Rights Offerings, Trading, and Regulation: A Global Perspective (December 13, 2013). INSEAD Working Paper No. 2013/120/FIN. Available at SSRN: https://ssrn.com/abstract=2340504 or http://dx.doi.org/10.2139/ssrn.2340504

Massimo Massa

INSEAD - Finance ( email )

Boulevard de Constance
F-77305 Fontainebleau Cedex
France
+33 1 6072 4481 (Phone)
+33 1 6072 4045 (Fax)

Theo Vermaelen

INSEAD - Finance ( email )

Boulevard de Constance
F-77305 Fontainebleau Cedex
France
33 1 60 72 42 63 (Phone)
33 1 60 72 40 45 (Fax)

Moqi Groen-Xu (Contact Author)

London School of Economics & Political Science (LSE) ( email )

Houghton Street
London, WC2A 2AE
United Kingdom

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