Alternative Flotation Methods, Adverse Selection, and Ownership Structure: Evidence from Seasoned Equity Issuance in the U.K.

Posted: 23 Apr 2001

See all articles by Myron B. Slovin

Myron B. Slovin

Louisiana State University, Baton Rouge - Department of Finance; HEC Paris

Marie E. Sushka

Arizona State University

Abstract

We examine valuation effects of announcements of seasoned equity issuance and assess the impact of the choice of flotation method in the U.K. Rights offerings are predominant, but in 1986, British firms gained the flexibility to conduct placings, which are comparable to U.S. firm commitment offerings. A placing is a fixed-price bought deal that increases ownership dispersion.

Placings generate significantly positive share price effects, whereas rights offerings have large negative valuation effects that become more adverse after 1985. We conclude that the option to conduct placings enhances the ability of firms to signal their quality and to use a seasoned equity offering to reduce ownership concentration.

Keywords: Equity issuance, Flotation method, Rights offerings, Placings, Ownership concentration

JEL Classification: G24, G32, G15

Suggested Citation

Slovin, Myron B. and Sushka, Marie E., Alternative Flotation Methods, Adverse Selection, and Ownership Structure: Evidence from Seasoned Equity Issuance in the U.K.. Journal of Financial Economics, Vol. 57, No. 2, August 1, 2000, Available at SSRN: https://ssrn.com/abstract=251512

Myron B. Slovin (Contact Author)

Louisiana State University, Baton Rouge - Department of Finance ( email )

2163 CEBA
Baton Rouge, LA 70803
United States
480-820-5949 (Phone)

HEC Paris ( email )

France
33146476045 (Phone)

Marie E. Sushka

Arizona State University ( email )

W. P. Carey School of Business
PO Box 873906
Tempe, AZ 85287-3906
United States
602-965-3131 (Phone)
602-965-8539 (Fax)

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