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Rights Offerings and Corporate Financial Condition

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  • Nancy D. Ursel

Abstract

Certain American industrial firms still use equity rights offerings. Most of these offerings are uninsured. I examine firms' financing decisions, and develop the explanation that rights offerings are used by firms in financial distress with difficulty accessing underwriting services. These firms have little to lose from the costs of adverse selection that accompany the lack of underwriter certification of uninsured rights offerings. Probit analysis of 660 seasoned NYSE, Amex, and Nasdaq equity issues between 1983–1999 yields results consistent with my explanation. There is no evidence that variables previously linked to rights usage (e.g., ownership concentration) continue to be relevant to the issue method choice.

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  • Nancy D. Ursel, 2006. "Rights Offerings and Corporate Financial Condition," Financial Management, Financial Management Association International, vol. 35(1), pages 31-52, March.
    • Handle: RePEc:bla:finmgt:v:35:y:2006:i:1:p:31-52
    DOI: 10.1111/j.1755-053X.2006.tb00130.x
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    Cited by:

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    2. Lee, Chin-Chong & Poon, Wai-Ching, 2018. "Wealth transfers in rights offerings and the protective instruments," Journal of Contemporary Accounting and Economics, Elsevier, vol. 14(3), pages 335-357.
    3. Massa, Massimo & Vermaelen, Theo & Xu, Moqi, 2013. "Rights offerings, trading, and regulation: a global perspective," LSE Research Online Documents on Economics 55403, London School of Economics and Political Science, LSE Library.
    4. Balachandran, Balasingham & Faff, Robert & Theobald, Michael, 2008. "Rights offerings, takeup, renounceability, and underwriting status," Journal of Financial Economics, Elsevier, vol. 89(2), pages 328-346, August.
    5. Mike Burkart & Hongda Zhong, 2023. "Equity Issuance Methods and Dilution," The Review of Corporate Finance Studies, Society for Financial Studies, vol. 12(1), pages 78-130.
    6. B. Espen Eckbo, 2008. "Equity Issues and the Disappearing Rights Offer Phenomenon," Journal of Applied Corporate Finance, Morgan Stanley, vol. 20(4), pages 72-85, September.
    7. Lee, Chin-Chong & Poon, Wai-Ching & Sinnakkannu, Jothee, 2014. "Why are rights offers in Hong Kong so different?," Pacific-Basin Finance Journal, Elsevier, vol. 26(C), pages 176-197.
    8. Balasingham Balachandran & Robert Faff & Lily H. G. Nguyen & Premkanth Puwanenthiren, 2020. "The impact of audit quality in rights offerings," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 60(3), pages 2007-2037, September.
    9. Holderness, Clifford G. & Pontiff, Jeffrey, 2016. "Shareholder nonparticipation in valuable rights offerings: New findings for an old puzzle," Journal of Financial Economics, Elsevier, vol. 120(2), pages 252-268.
    10. Balasingham Balachandran & Sutharson Kanapathippillai & Chandrasekhar Krishnamurti & Michael Theobald & Eswaran Velayutham, 2017. "The issuance of warrants in rights offerings: Agency costs and signaling effects," Australian Journal of Management, Australian School of Business, vol. 42(4), pages 608-636, November.
    11. Burkart, Mike & Zhong, Hongda, 2019. "Equity Issue Methods and dilution," CEPR Discussion Papers 14130, C.E.P.R. Discussion Papers.
    12. Dang, Man & Puwanenthiren, Premkanth & Thai, Hong An & Mazur, Mieszko & Jones, Edward & Vo, Xuan Vinh, 2021. "Policy uncertainty and seasoned equity offerings methods," International Review of Financial Analysis, Elsevier, vol. 77(C).

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