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Rights offerings, trading, and regulation: A global perspective

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  • Massimo Massa
  • Theo Vermaelen
  • Moqi Xu

Abstract

We study rights offerings using a sample of 8,238 rights offers announced during 1995-2008 in 69 countries. Although shareholders prefer having the option to trade rights, issuers deliberately restrict tradability in 38% of the offerings. We argue that firms restrict rights trading to avoid the execution risk associated with strict prospectus requirements, a prolonged and uncertain transaction process, and the potentially negative information signaled via the price of traded rights. In line with this argument, we find that issuers restricting tradability are those with more to lose from reduced participation or that are more likely to face execution risk.

Suggested Citation

  • Massimo Massa & Theo Vermaelen & Moqi Xu, 2013. "Rights offerings, trading, and regulation: A global perspective," FMG Discussion Papers dp727, Financial Markets Group.
    • Handle: RePEc:fmg:fmgdps:dp727
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    More about this item

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • K22 - Law and Economics - - Regulation and Business Law - - - Business and Securities Law

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