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Evidence on the determinants of equity issue method in the UK

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  • B. M. Burton
  • D. M. Power

Abstract

Eckbo and Masulis (1992), Burton et al. (1999) and Armitage (1999) reported that the method used to issue new shares is one of the key determinants of the market reaction to seasoned equity offer announcements. This article develops this earlier line of research by examining a sample of 193 rights issues and 329 placings of shares made by UK firms between 1995 and 1996. It (i) details the relative popularity of rights and placings amongst London-quoted firms; (ii) compares the characteristics of the equity issues made under the different methods; (iii) examines variations in the attributes of firms which place their shares or offer them to existing investors via a rights issue and; (iv) uses logit analysis to investigate whether the determinants of offer method choice can be modelled accurately. A holdout sample of 59 placings and 29 rights issues is employed to examine the predictive ability of the logit model results. The evidence suggests that identifiable differences exist in both the size of the issue and the characteristics of the issuer, but that these differences provide only limited ability to predict equity issue methods accurately.

Suggested Citation

  • 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.
    • Handle: RePEc:taf:apfiec:v:13:y:2003:i:2:p:145-157
    DOI: 10.1080/09603100110108127
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    References listed on IDEAS

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    Cited by:

    1. Bruce Burton & Christine Helliar & David Power, 2004. "The benefits and costs of deeply-discounted rights issues - practitioners viewpoints," Applied Economics Letters, Taylor & Francis Journals, vol. 11(6), pages 369-372.
    2. 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.
    3. 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.
    4. Mohd Edil Abd Sukor & Obiyathulla Ismath Bacha, 2010. "Pricing efficiency of stock rights issues in Malaysia," Applied Financial Economics, Taylor & Francis Journals, vol. 20(22), pages 1751-1760.
    5. Adrian Melia & Paul Docherty & Steve Easton, 2020. "The impact of regulation on the seasoned equity offering decision," Australian Journal of Management, Australian School of Business, vol. 45(1), pages 94-113, February.
    6. 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.

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