DP11987 Choices in Equity Finance A Global Perspective

Author(s): Moqi Groen-Xu, Massimo Massa, Virginie Mataigne, Theo Vermaelen
Publication Date: April 2017
Keyword(s): liquidity of rights, rights issue, seasoned equity offer
JEL(s): G14, G32, G38, K22
Programme Areas: Financial Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=11987

Equity issues can be structured as cash or rights offers and depending on the country's legislation firms can allow or restrict tradability of the rights. We study these choices using a worldwide sample of equity issues announced in 127 countries. We consider whether these choices as well as the short and long-term stock returns can be explained by a number of hypotheses proposed in the literature. The empirical findings confirm that the issuing method is driven by adverse selection and financial distress concerns, while the tradability decision reflects execution risk as well as transactions costs.