Alternative flotation methods, adverse selection, and ownership structure : evidence from seasoned equity issuance in the U.K.

M. B. SLOVIN, M. E. SUSHKA, K. W. L. LAI

Research output: Journal PublicationsJournal Article (refereed)Researchpeer-review

103 Citations (Scopus)

Abstract

We examine valuation effects of announcements of seasoned equity issuance and assess the impact of the choice of flotation method in the U.K. Rights offerings are predominant, but in 1986, British firms gained the flexibility to conduct placings, which are comparable to U.S. firm commitment offerings. A placing is a fixed-price bought deal that increases ownership dispersion. Placings generate significantly positive share price effects, whereas rights offerings have large negative valuation effects that become more adverse after 1985. We conclude that the option to conduct placings enhances the ability of firms to signal their quality and to use a seasoned equity offering to reduce ownership concentration.
Original languageEnglish
Pages (from-to)157-190
Number of pages34
JournalJournal of Financial Economics
Volume57
Issue number2
DOIs
Publication statusPublished - 1 Aug 2000

Fingerprint

Adverse selection
Placing
Ownership structure
Equity issuance
Flotation
Rights offerings
Valuation effects
Announcement
Ownership
Quality signal
Fixed price
Ownership concentration
Share prices
Seasoned equity offerings
Price effects

Keywords

  • Equity issuance
  • Flotation method
  • G15
  • G24
  • G32
  • Ownership concentration
  • Placings
  • Rights offerings

Cite this

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title = "Alternative flotation methods, adverse selection, and ownership structure : evidence from seasoned equity issuance in the U.K.",
abstract = "We examine valuation effects of announcements of seasoned equity issuance and assess the impact of the choice of flotation method in the U.K. Rights offerings are predominant, but in 1986, British firms gained the flexibility to conduct placings, which are comparable to U.S. firm commitment offerings. A placing is a fixed-price bought deal that increases ownership dispersion. Placings generate significantly positive share price effects, whereas rights offerings have large negative valuation effects that become more adverse after 1985. We conclude that the option to conduct placings enhances the ability of firms to signal their quality and to use a seasoned equity offering to reduce ownership concentration.",
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Alternative flotation methods, adverse selection, and ownership structure : evidence from seasoned equity issuance in the U.K. / SLOVIN, M. B.; SUSHKA, M. E.; LAI, K. W. L.

In: Journal of Financial Economics, Vol. 57, No. 2, 01.08.2000, p. 157-190.

Research output: Journal PublicationsJournal Article (refereed)Researchpeer-review

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AU - SUSHKA, M. E.

AU - LAI, K. W. L.

PY - 2000/8/1

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KW - Equity issuance

KW - Flotation method

KW - G15

KW - G24

KW - G32

KW - Ownership concentration

KW - Placings

KW - Rights offerings

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