The Choice between Rights Offerings and Private Equity Placements

42 Pages Posted: 6 Jul 2001

See all articles by Henrik Cronqvist

Henrik Cronqvist

University of Miami - Department of Finance

Mattias Nilsson

U.S. Securities and Exchange Commission

Date Written: November 2004

Abstract

We develop and test a nested logit model to examine how firms choose between a rights offering and a private equity placement. We find that family-controlled firms avoid issue methods that dilute control benefits or subject them to more monitoring, in particular when the family's control margin is small and the wedge between votes and capital is large. Control considerations also affect security design in equity issues. We also find that firms use private placements to reduce contracting and ex post holdup costs in new product market relationships. Finally, we find that firms with higher asymmetric information about firm value are more likely to involve underwriter certification in a rights offering, and to choose a private placement when information asymmetries are extreme.

Keywords: Seasoned equity offerings, Equity issue methods, Rights offerings, Private placements

JEL Classification: G32, G34

Suggested Citation

Cronqvist, Henrik and Nilsson, Mattias, The Choice between Rights Offerings and Private Equity Placements (November 2004). EFA 2001 Barcelona Meetings. Available at SSRN: https://ssrn.com/abstract=275846 or http://dx.doi.org/10.2139/ssrn.275846

Henrik Cronqvist (Contact Author)

University of Miami - Department of Finance ( email )

5250 University Drive
314-E Jenkins Building
Coral Gables, FL 33146
United States
(305) 284-9482 (Phone)

HOME PAGE: http://sites.google.com/site/henrikcronqvist/

Mattias Nilsson

U.S. Securities and Exchange Commission ( email )

United States Securities and Exchange Commission
100 F Street NE
Washington, DC 20549
United States

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