The Seasoned-Equity Issues of UK Firms: Market Reaction and Issuance Method Choice

34 Pages Posted: 15 Apr 2006

See all articles by Edel Barnes

Edel Barnes

University College Cork - Department of Accounting, Finance and Information Systems

Martin Walker

University of Manchester - Manchester Business School

Abstract

This study examines the seasoned equity issues of companies traded on the London Stock Exchange. Recent regulatory changes have allowed UK firms more discretion in choice of issue approach, and this has led many firms to issue through placing in preference to a rights issue. Having first documented the trend towards increasing use of placings, we go on to identify an interesting subset of placings that are less likely to be anticipated by the market, and find a significant positive market reaction to such placings, which contrasts with the significant negative reaction we find for issues by rights. We also examine the choice of seasoned equity issuance method, focusing on the choice between placings versus rights issues. We develop a model to explain the choice of equity issue method that achieves a high level of predictive accuracy.

Suggested Citation

Barnes, Edel and Walker, Martin, The Seasoned-Equity Issues of UK Firms: Market Reaction and Issuance Method Choice. Journal of Business Finance & Accounting, Vol. 33, No. 1-2, pp. 45-78, January/March 2006, Available at SSRN: https://ssrn.com/abstract=886396 or http://dx.doi.org/10.1111/j.1468-5957.2006.01354.x

Edel Barnes (Contact Author)

University College Cork - Department of Accounting, Finance and Information Systems ( email )

O'Rahilly Building
College Road
Cork
Ireland
+353 21 4902839 (Phone)
+353 21 4903346 (Fax)

Martin Walker

University of Manchester - Manchester Business School ( email )

Booth Street West
Manchester, M15 6PB
United Kingdom

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