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Rights offerings, takeup, renounceability, and underwriting status

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  • Balachandran, Balasingham
  • Faff, Robert
  • Theobald, Michael

Abstract

Rights offerings in Australia provide valuable choices to the issuer in terms of both underwriting and renounceability. We formulate a set of hypotheses from a quality-signaling perspective, affording an analysis of the key interrelations between quality, underwriting status, renounceability, takeup, and subscription price discount. We analyse rights offerings from two perspectives: market reaction to rights announcements and identification of the factors driving the choice of issue type. Evidence strongly supports the relation between quality signals and issue type. Using a robustly constructed takeup variable, we establish empirical relations between takeup, underwriting status, and renounceability that differ significantly from those previously reported, but which are consistent with the hypotheses developed in this paper.

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  • 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.
    • Handle: RePEc:eee:jfinec:v:89:y:2008:i:2:p:328-346
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    9. Melia, Adrian & Chan, Howard & Docherty, Paul & Easton, Steve, 2018. "Explanations of cycles in seasoned equity offerings: An examination of the choice between rights issues and private placements," Pacific-Basin Finance Journal, Elsevier, vol. 50(C), pages 16-25.
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    11. Arnoud W.A. Boot & Matej Marinč, 2012. "Financial Innovations, Marketability and Stability in Banking," Chapters, in: James R. Barth & Chen Lin & Clas Wihlborg (ed.), Research Handbook on International Banking and Governance, chapter 22, Edward Elgar Publishing.
    12. Dissanaike, Gishan & Faasse, Jonathan & Jayasekera, Ranadeva, 2014. "What do equity issuances signal? A study of equity issuances in the UK before and during the financial crisis," Journal of International Money and Finance, Elsevier, vol. 49(PB), pages 358-385.
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    14. Pradip Banerjee & Soumya Guha Deb, 2015. "The Choice between QIP and Rights Issue: Evidence from India," Global Business Review, International Management Institute, vol. 16(5_suppl), pages 155-174, October.
    15. 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.
    16. Hue Hwa Au Yong & Christine Brown & Choy Yeing (Chloe) Ho & Chander Shekhar, 2021. "Rights issues: Retail shareholders and their participation decisions," International Review of Finance, International Review of Finance Ltd., vol. 21(3), pages 917-944, September.
    17. Seth Armitage & Dionysia Dionysiou & Angelica Gonzalez, 2014. "Are the Discounts in Seasoned Equity Offers Due to Inelastic Demand?," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 41(5-6), pages 743-772, June.
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    23. 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.

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