Why are rights offers in Hong Kong so different?
Investors react adversely to the announcements of rights offers in Hong Kong and the abnormal return of rights offers on the announcement day is −12.10%. After taking price discounts, underwriting fees and abnormal returns into consideration, the total direct and indirect costs of the seasoned i...
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| Main Authors: | , , |
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| Format: | Article |
| Published: |
Elsevier
2014
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| Subjects: | |
| Online Access: | http://eprints.intimal.edu.my/167/ http://www.journals.elsevier.com/pacific-basin-finance-journal |
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| Summary: | Investors react adversely to the announcements of rights offers in Hong
Kong and the abnormal return of rights offers on the announcement day
is −12.10%. After taking price discounts, underwriting fees and
abnormal returns into consideration, the total direct and indirect costs
of the seasoned issuers of rights offers are tremendously high. The
cross-sectional analysis shows that investors react more adversely to
the issuers of rights offers with lower growth prospects, higher free cash
flows, larger issue scales, lower pre-issuance stock run up and higher
debt capacity. Our empirical result also indicates that cash-rich firms
with fewinvestment opportunities and firmswith poor quality in terms
of lower market-to-book ratio and larger price discounts choose rights
offers over private equity placements. All this evidence supports that
agency costs and private benefits of control matter in equity financing. |
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