Agency Conflicts in Closed-End Funds: The Case of Rights Offerings

Posted: 12 Feb 2002

See all articles by Ajay Khorana

Ajay Khorana

Georgia Institute of Technology - Finance Area

Sunil Wahal

Arizona State University (ASU) - Finance Department

Marc Zenner

Citigroup, Inc. - Investment Banking Division

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Abstract

We study 120 rights offerings by closed-end funds over 1988-1998. On average, rights offerings are announced when funds trade at a premium. This premium turns into a discount over the course of the offering. The premium decline is more severe when the increases in investment advisor's compensation are larger and when the fund uses affiliated broker-dealers to solicit subscriptions to the offer. A clinical analysis shows that rights offerings allow investment advisors to sidestep fee rebates and increase pecuniary benefits to affiliated entities. Overall, our results suggest the presence of significant conflicts of interests in rights offerings by closed-end funds.

Suggested Citation

Khorana, Ajay and Wahal, Sunil and Zenner, Marc, Agency Conflicts in Closed-End Funds: The Case of Rights Offerings. Available at SSRN: https://ssrn.com/abstract=300282

Ajay Khorana (Contact Author)

Georgia Institute of Technology - Finance Area ( email )

800 West Peachtree St.
Atlanta, GA 30308
United States
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Sunil Wahal

Arizona State University (ASU) - Finance Department ( email )

W. P. Carey School of Business
PO Box 873906
Tempe, AZ 85287-3906
United States

Marc Zenner

Citigroup, Inc. - Investment Banking Division ( email )

Salomon Smith Barney
388 Greenwich St., 24th Flr
New York, NY 10013
United States

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