Determinants of Discounts in Equity Rights Issues: An International Comparison

Abstract

Equity rights offerings are the predominant SEO floatation method in many European and Asian countries. Several previous studies focus on rights offerings, but these studies often measure solely the announcement effects of these offerings and pay little attention to the discount. This study seeks to close this gap, explain the discounts on such rights offerings and determine the drivers of offering discounts with a focus on cultural effects regarding the level of uncertainty avoidance. Based on the existing literature, we develop several hypotheses and find supporting evidence for these hypotheses in our data. Our main finding is that the most important factors for explaining the discount on an equity rights offer are the level of uncertainty avoidance, the quality of a firm, and the level of uncertainty about firm value.

Keywords: Discount, equity rights offering, uncertainty avoidance

JEL Classification: G15, G32, G40