Private Placement and Rights Issue Cycles

32 Pages Posted: 25 Jan 2016

See all articles by Adrian Melia

Adrian Melia

University of Newcastle (Australia)

H. Chan

University of Melbourne - Department of Finance; Monash University - Department of Accounting

Paul Docherty

The Brattle Group

Steve Easton

University of Newcastle (Australia) - Newcastle Business School

Date Written: January 21, 2016

Abstract

The paucity of rights issues in the US and the effect of the imputation tax system on share issuance in Australia allow us to examine the drivers of seasoned equity offerings (SEOs) in a unique setting. This paper provides a comprehensive examination of the factors (information asymmetry, demand for capital, market timing and investor sentiment) that cause the number of seasoned equity offerings to vary over time. We find that in an imputation environment, cycles in total SEO issuance and private placements are driven by the demand for capital, whereas rights issue cycles are driven by investor sentiment. Our results suggest that as firms require capital for investment there will be an increase in SEOs driven by placements and that firms increasingly utilise rights issues when investor sentiment is high, thereby reducing the risk inherent in rights issues.

Keywords: SEO, rights issue, private placement, information asymmetry, demand for capital, investor sentiment, market timing, cycles

JEL Classification: G10, G30

Suggested Citation

Melia, Adrian and Chan, Howard and Docherty, Paul and Easton, Steve, Private Placement and Rights Issue Cycles (January 21, 2016). 2016 Financial Markets and Corporate Governance, Available at SSRN: https://ssrn.com/abstract=2719965 or http://dx.doi.org/10.2139/ssrn.2719965

Adrian Melia (Contact Author)

University of Newcastle (Australia) ( email )

University Drive
Callaghan, NSW 2308
Australia

Howard Chan

University of Melbourne - Department of Finance ( email )

Faculty of Economics and Commerce
Parkville, Victoria 3010 3010
Australia

Monash University - Department of Accounting ( email )

Building 11E
Clayton, Victoria 3800
Australia

Paul Docherty

The Brattle Group ( email )

44 Brattle Street
3rd Floor
Cambridge, MA 02138-3736
United States

Steve Easton

University of Newcastle (Australia) - Newcastle Business School

City Campus East – 231
Newcastle-Upon-Tyne NE1 8ST, NE1 8ST
Australia

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