Rights Offerings Can Be Costly: Intraday Evidence from Non-Underwritten Rights Offerings
37 Pages Posted: 19 Mar 2007
Date Written: March 15, 2007
Abstract
We study the trading dynamics associated with a sample of non-underwritten rights offerings by issuers that are effectively precluded from using an underwriter when issuing seasoned equity. Market microstructure evidence is consistent with shareholders and brokers actively intermediating these offerings using short selling strategies. Large negative returns during the offering period, wealth transfers from non-participating shareholders to intermediaries, and difficulties associated with shareholder intermediation may make the non-underwritten rights method relatively more costly and highly impractical for widely held firms.
Keywords: Rights offerings, Short selling, Financial intermediation
JEL Classification: G24
Suggested Citation: Suggested Citation
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