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Equity issuance methods and dilution

Burkart, Mike ORCID: 0000-0002-0954-4499 and Zhong, Hongda (2023) Equity issuance methods and dilution. Review of Corporate Finance Studies, 12 (1). 78 – 130. ISSN 2046-9128

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Identification Number: 10.1093/rcfs/cfac029

Abstract

We analyze rights and public offerings when informed shareholders strategically choose to subscribe. Absent wealth constraints, rights offerings achieve the full information outcome and dominate public offerings. When some shareholders are wealth constrained, rights offerings lead to more dilution of their stakes and lower payoffs, despite the income from selling these rights. In both rights and public offerings, there is a trade-off between investment efficiency and wealth transfers among shareholders. When firms can choose the flotation method, either all firms choose the same offer method or high and low types opt for rights offerings, while intermediate types select public offerings.

Item Type: Article
Official URL: https://academic.oup.com/rcfs
Additional Information: © 2022 The Author(s).
Divisions: Finance
Subjects: H Social Sciences > HG Finance
JEL classification: G - Financial Economics > G3 - Corporate Finance and Governance > G32 - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure
Date Deposited: 13 Jan 2023 15:18
Last Modified: 27 Sep 2023 16:48
URI: http://eprints.lse.ac.uk/id/eprint/117895

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