Rights Offerings, Trading, and Regulation: A Global Perspective
February 7, 2014 Leave a comment
Rights Offerings, Trading, and Regulation: A Global Perspective
Massimo Massa
INSEAD – Finance
Theo Vermaelen
INSEAD – Finance
Moqi Xu
London School of Economics & Political Science (LSE)
December 13, 2013
INSEAD Working Paper No. 2013/120/FIN
Abstract:
We study right offerings around the world, using a sample of 8,238 rights offers announced during 1995-2008 in 69 countries. Although shareholders prefer having the option to trade rights, issuers deliberately restrict tradability in 38% of the offerings. We argue that firms restrict rights trading in order to avoid the execution risk associated with strict prospectus requirements, a prolonged and uncertain transaction process, and the potentially negative information signalled via the price of traded rights. In line with this argument, we find that issuers restricting tradability are those with more to lose from reduced participation or that are more likely to face execution risk.