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- Title
Discounts in Placing Pre-renounced Shares in Rights Issues.
- Authors
Armitage, Seth
- 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.
- Subjects
STOCKHOLDERS; INVESTORS; INELASTIC demand; ECONOMIC demand; STOCKHOLDERS' pre-emptive rights; ECONOMIC indicators; DISCOUNT prices; STOCK prices; PRICE-earnings ratio; SPREAD (Finance)
- Publication
Journal of Business Finance & Accounting, 2007, Vol 34, Issue 7/8, p1345
- ISSN
0306-686X
- Publication type
Article
- DOI
10.1111/j.1468-5957.2007.02016.x