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The Choice between QIP and Rights Issue: Evidence from India

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  • Pradip Banerjee
  • Soumya Guha Deb

Abstract

This article intends to study the market reaction to qualified institutional placements (QIPs) by Indian firms and the motivations of Indian firms behind issuing shares through QIP route vis-à -vis the rights issue route. In India, a large number of businesses are controlled by families. Therefore, rights issue would apparently seem to be a good avenue to raise additional capital and avoid the dilution of ownership. In this backdrop, using the data of firms issuing QIPs in India from 2007 to 2013, we examine the factors determining the decision for a company to go for a QIP or a rights issue. We examine the role of firm-level factors, such as, the concentration of promoter’s shareholdings, several proxies, such as, size, age and book-to-market for information asymmetry and a number of other firm-level variables in determining such choice. We find that market reacts positively to QIP announcements for companies having low promoter holdings before the QIP. However, we do not find any evidence of certification role played by institutional investors for QIPs in India.

Suggested Citation

  • 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.
    • Handle: RePEc:sae:globus:v:16:y:2015:i:5_suppl:p:155s-174s
    DOI: 10.1177/0972150915601260
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