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- Title
The quasi-split effect, active insiders and the Italian market reaction to equity rights issues.
- Authors
Bigelli, Marco
- Abstract
The positive market reaction at the announcement of most European rights issues can be explained by two major factors which distinguish them from a US public offering: active insiders, and a quasi-split effect which signals a large increase in the dividend yield. An analysis of 428 Italian rights offerings and an event study involving 82 observations in the 1980-94 period show that Italian insiders are completely 'active', and almost 85% of the equity rights issues result in a dividend yield increase, which corresponds to the quasi-split effect in approximately 40% of the issues. The dividend yield rises, on average, by a significant +61% after a combined rights offering and by a significantly lower +20% following a fully-paid rights issue. The market reaction to the announcement is significantly positive for combined rights" offerings" (+2.77%) and positive, but not significant, for the whole sample (+0.79%). The dividend increase signalled by the quasi-split effect explains almost 30% of the abnormal returns' cross-sectional variation and it is" the only significant explanatory variable.
- Subjects
ITALY; STOCK exchanges; STOCKHOLDERS' pre-emptive rights; RIGHTS offerings
- Publication
European Financial Management, 1998, Vol 4, Issue 2, p185
- ISSN
1354-7798
- Publication type
Article
- DOI
10.1111/1468-036X.00063