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Rights Offerings, Subscription Period, Shareholder Takeup, and Liquidity

Published online by Cambridge University Press:  14 November 2011

Balasingham Balachandran ,
Robert Faff ,
Michael Theobald  and
Tony van Zijl
Balasingham Balachandran
Affiliation:
La Trobe University, Graduate School of Management, Bundoora, Vic 3086, Australia. b.balachandran@latrobe.edu.au
Robert Faff
Affiliation:
University of Queensland, Business School, Queensland 4072, Australia. r.faff@business.uq.edu.au
Michael Theobald
Affiliation:
University of Birmingham, Business School, University House, Edgbaston, Birmingham B15 2TT, UK, and Mifranthe Associates. m.f.theobald@bham.ac.uk
Tony van Zijl
Affiliation:
Victoria University of Wellington, School of Accounting and Commercial Law, 23 Lambton Quay, Pipitea Campus, New Zealand. tony.vanzijl@vuw.ac.nz
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Abstract

We examine the role of shareholder takeup in rights offerings on the subscription period price reaction and liquidity. Our results indicate that takeup information is reflected in price adjustments over the subscription period and that quality-related information disclosed on the rights announcement date further impacts prices in this period. Higher shareholder takeup improves liquidity. We do find some evidence of inefficiencies in the adjustment process over the subscription period that, in part, is consistent with a model where markets are characterized by overconfident investors and that also articulates with takeup information arriving in the market.

Type
Research Articles
Information
Journal of Financial and Quantitative Analysis , Volume 47 , Issue 1 , February 2012 , pp. 213 - 239
Copyright
Copyright © Michael G. Foster School of Business, University of Washington 2012

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