Price Reaction to Rights Issues in the Indian Capital Market

41 Pages Posted: 8 May 2007

See all articles by Vijaya B. Marisetty

Vijaya B. Marisetty

RMIT University; Financial Research Network (FIRN)

Alastair Marsden

University of Auckland - Business School

Madhu Veeraraghavan

T.A. PAI Management Institute, Finance Area

Date Written: May 2007

Abstract

This study examines securities price reaction to announcements of rights issues by listed Indian firms during the period 1997-2005. We document a positive but statistically insignificant price reaction to such announcements. The price reaction is significantly more negative for firms with a family group affiliation compared to firms with no family group affiliation. The notable differential price reaction between firms with and without a family group affiliation can be explained by the "tunneling hypothesis." For firms affiliated with a family group, we surmise that investors perceive that the proceeds of the rights issue may be misused for the benefit of the controlling shareholder. We also find that higher levels of individual shareholding in the firm are associated with a more positive price reaction to the announcement.

Keywords: price reaction, rights issues, disclosure regulation, informed trading, event study

JEL Classification: D82, G14, K22

Suggested Citation

Marisetty, Vijaya B. and Marsden, Alastair D.E. and Veeraraghavan, Madhu, Price Reaction to Rights Issues in the Indian Capital Market (May 2007). Available at SSRN: https://ssrn.com/abstract=984805 or http://dx.doi.org/10.2139/ssrn.984805

Vijaya B. Marisetty (Contact Author)

RMIT University ( email )

Business
Level 12, 239 Bourke Street
Melbourne, Victoria 3000
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Alastair D.E. Marsden

University of Auckland - Business School ( email )

Private Bag 92019
Room: C208
Auckland
New Zealand
64 9 373 7999 (Phone)
64 9 373 7406 (Fax)

Madhu Veeraraghavan

T.A. PAI Management Institute, Finance Area ( email )

Bangalore
Manipal, Karnataka 576104
India
+91-820-2701030 (Phone)

Register to save articles to
your library

Register

Paper statistics

Downloads
429
Abstract Views
2,117
rank
66,525
PlumX Metrics