Massa, Massimo, Vermaelen, Theo and Xu, Moqi (2013) Rights offerings, trading, and regulation: a global perspective. Financial Markets Group discussion paper, DP727. Financial Markets Group, The London School of Economics and Political Science, London, UK.
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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.
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