The Choice of Seasoned-Equity Selling Mechanism: Theory and Evidence

57 Pages Posted: 17 Dec 2004

See all articles by B. Espen Eckbo

B. Espen Eckbo

Tuck School of Business at Dartmouth; European Corporate Governance Institute (ECGI)

Oyvind Norli

BI Norwegian Business School - Department of Financial Economics

Multiple version iconThere are 2 versions of this paper

Date Written: November 2004

Abstract

Extending the Myers and Majluf (1984) framework, we present a model for the choice of seasoned-equity selling mechanism. A sequential pooling equilibrium exists which implies a positive market reaction to certain flotation strategies. We examine the model implications using the market reaction to issues on the Oslo Stock Exchange using the full range of flotation methods. The average market reaction is non-negative across all methods, and significantly positive for both rights offerings and private placements, as predicted. We also show that average long-run abnormal stock returns to OSE issuers are indistinguishable from zero, supporting the market rationality assumption underpinning the flotation game.

Keywords: Adverse selection, equity offerings, flotation method, rights offer, private placement, underwriting, sequential equilibrium, announcement returns, long-run returns

JEL Classification: G20, G24, G30, G32

Suggested Citation

Eckbo, B. Espen and Norli, Oyvind, The Choice of Seasoned-Equity Selling Mechanism: Theory and Evidence (November 2004). Available at SSRN: https://ssrn.com/abstract=635649 or http://dx.doi.org/10.2139/ssrn.635649

B. Espen Eckbo (Contact Author)

Tuck School of Business at Dartmouth ( email )

Hanover, NH 03755
United States
603-646-3953 (Phone)
603-646-3805 (Fax)

HOME PAGE: http://www.tuck.dartmouth.edu/eckbo

European Corporate Governance Institute (ECGI)

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Oyvind Norli

BI Norwegian Business School - Department of Financial Economics ( email )

Nydalsveien 37
Oslo, N-0442
Norway
+4746410514 (Phone)

HOME PAGE: http://https://home.bi.no/oyvind.norli/

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