The Long-Run Performance of UK Rights Issuers

Posted: 29 Nov 2014

See all articles by Abdullah Iqbal

Abdullah Iqbal

University of Kent, Canterbury

Susanne Espenlaub

University of Manchester - Manchester Business School

Norman C. Strong

University of Manchester - Alliance Manchester Business School

Date Written: December 20, 2006

Abstract

The long-run performance of 424 UK rights issues during 1991-95 shows that issuers outperform the market and non-issuing peers in the pre-issue period and underperform in the post-issue period. To explain these results, we examine the timing and earnings management hypotheses and show that our results support the latter. Specifically, we find that issuing firms use discretionary current accruals to manipulate earnings, with operating performance improving significantly before the issue but deteriorating thereafter and that discretionary current accruals in the pre-issue year predict the return underperformance in the two years post-issue. That we find these results for rights issues where new equity is offered pro rata to existing shareholders suggests the incentives of managers or informed shareholders drive earnings management.

Keywords: earnings management, rights issues, SEOs, return performance, operating performance

JEL Classification: G14; G15; G24; G32; M41

Suggested Citation

Iqbal, Abdullah and Espenlaub, Susanne and Strong, Norman Charles, The Long-Run Performance of UK Rights Issuers (December 20, 2006). Frontiers in Finance and Economics, Vol. 3, No. 2, 2006. Available at SSRN: https://ssrn.com/abstract=2531458

Abdullah Iqbal (Contact Author)

University of Kent, Canterbury ( email )

Canterbury, Kent CT2 7PE
United Kingdom

Susanne Espenlaub

University of Manchester - Manchester Business School ( email )

Booth Street West
Manchester, M15 6PB
United Kingdom

Norman Charles Strong

University of Manchester - Alliance Manchester Business School ( email )

Booth Street West
Manchester, M15 6PB
United Kingdom

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