Rights Offerings, Trading, and Regulation: A Global Perspective
45 Pages Posted: 17 Oct 2013
Date Written: December 13, 2013
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: Suggested Citation