Discounts in Placing Pre-renounced Shares in Rights Issues |
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Authors: | Seth Armitage |
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Institution: | The author is from the Department of Accountancy and Finance, Heriot-Watt University, Edinburgh. |
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Abstract: | Abstract: The paper presents evidence from UK rights issues on the discounts at which large blocks of new shares plus rights are sold. The shares are renounced by the shareholders entitled to them and placed with passive investors at substantial discounts of around 8% to the expected ex-rights midpoint price of the existing shares. Tests indicate that the discounts arise because of uncertainty about issuer value and inelastic demand for the shares rather than because the issuing companies are overvalued. The finding that selling renounced shares is costly removes an apparent advantage of rights issues compared with open offers and private placings. |
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Keywords: | rights issues open offers private placings offer-price discounts long-run abnormal returns |
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