Are the Discounts in Seasoned Equity Offers Due to Inelastic Demand?

Journal of Business Finance and Accounting 41, 2014, pp. 743-72

50 Pages Posted: 1 Oct 2014 Last revised: 28 Mar 2016

See all articles by Seth Armitage

Seth Armitage

University of Edinburgh - Accounting and Finance

Dionysia Dionysiou

University of Stirling

Angelica Gonzalez

University of Edinburgh

Multiple version iconThere are 2 versions of this paper

Date Written: February 1, 2014

Abstract

This paper investigates the large and diverse discounts in UK open offers and placings. Large discounts are a substantial cost to shareholders who do not buy new shares. The existing literature mainly examines US firm-commitment offers and private placements. The institutional setting differs in the UK, in ways that make the theory of inelastic demand for shares more important as an explanation for discounts than in the USA. The paper finds that inelastic demand, or illiquidity of the issuer’s shares, and financial distress, are key determinants of the discount. We expect these results to apply to other stock markets.

Keywords: seasoned equity offer; discount; inelastic demand; open offer; placing

Suggested Citation

Armitage, Seth and Dionysiou, Dionysia and Gonzalez, Angelica, Are the Discounts in Seasoned Equity Offers Due to Inelastic Demand? (February 1, 2014). Journal of Business Finance and Accounting 41, 2014, pp. 743-72, Available at SSRN: https://ssrn.com/abstract=2502932

Seth Armitage (Contact Author)

University of Edinburgh - Accounting and Finance ( email )

29 Buccleuch Place
Edinburgh, EH8 9JS
United Kingdom
44 131 650 3794 (Phone)

Dionysia Dionysiou

University of Stirling ( email )

Accounting and Finance Division
Stirling, FK9 4LA
United Kingdom

Angelica Gonzalez

University of Edinburgh ( email )

Old College
South Bridge
Edinburgh, Scotland EH8 9JY
United Kingdom

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