Rights Offerings and Expropriation by Controlling Shareholders
18 Pages Posted: 26 Jul 2014
Date Written: June/July 2014
We investigate rights issues and open offers in Hong Kong. We observe that the greater the severity of firms’ management‐agency problems, the more unfavourably shareholders tend to react, leading to more negative cumulative abnormal returns or rights forfeiture. Controlling shareholders do not forfeit rights, and may increase their percentage ownership at deep price discounts by underwriting rights offerings. Our results suggest that, although certain rights offerings can be described as value‐enhancing, many other rights offerings closely resemble the expropriation activities of controlling shareholders.
Keywords: rights issues, open offers, corporate governance, event study
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