Friday, December 13, 2013

Rights Offerings, Trading, and Regulation: A Global Perspective

MASSA Massimo, VERMAELEN Theo, XU Moqi
Read the working paper
INSEAD Working Paper 2013/120/FIN

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.