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Does the issue method influence the market reaction to seasoned equity offer announcements?

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  • Bruce Burton
  • A. Alasdair Lonie
  • David Power

Abstract

The evidence in this note indicates that the average stock market reaction to news of ordinary equity issues by quoted companies may depend on the share issue method employed. Using a sample of announcements made in the UK between 1989 and 1991 we find that the market response is significantly negative when the disclosure relates to a rights issue, but that there are no significant share price changes when announcements about equity placings and open offers take place. This result appears to be inconsistent with the theoretical analysis contained in Myers and Majluf (Journal of Financial Economics, 13, 1984).

Suggested Citation

  • Bruce Burton & A. Alasdair Lonie & David Power, 1999. "Does the issue method influence the market reaction to seasoned equity offer announcements?," Applied Economics Letters, Taylor & Francis Journals, vol. 6(7), pages 459-462.
    • Handle: RePEc:taf:apeclt:v:6:y:1999:i:7:p:459-462
    DOI: 10.1080/135048599352998
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    Cited by:

    1. B. M. Burton & D. M. Power, 2003. "Evidence on the determinants of equity issue method in the UK," Applied Financial Economics, Taylor & Francis Journals, vol. 13(2), pages 145-157.
    2. Proches Ngatuni & John Capstaff & Andrew Marshall, 2007. "Long‐Term Performance Following Rights Issues and Open Offers in the UK," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 34(1‐2), pages 33-64, January.
    3. Philip Brown & Andrew Ferguson & Kate Stone, 2008. "Share Purchase Plans in Australia: Issuer Characteristics and Valuation Implications," Australian Journal of Management, Australian School of Business, vol. 33(2), pages 307-332, December.
    4. Consuelo Riano & Fco. Javier Ruiz & Rafael Santamaria, 2007. "Determinants of the underpricing of new shares during the subscription period: empirical evidence from the Spanish stock exchange," Applied Financial Economics, Taylor & Francis Journals, vol. 17(7), pages 521-540.
    5. Abdullah Iqbal & Susanne Espenlaub & Norman Strong, 2009. "Earnings management around UK open offers," The European Journal of Finance, Taylor & Francis Journals, vol. 15(1), pages 29-51.
    6. Burton, Bruce & Helliar, Christine & Power, David, 2005. "Practitioner perspectives on the seasoned equity offering process in the UK," The British Accounting Review, Elsevier, vol. 37(2), pages 153-175.

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