Stock market liquidity and the rights offer paradox
Koenig-Matsoukis, Laure; Riva, Fabrice; Ginglinger, Edith (2009), Stock market liquidity and the rights offer paradox, EFMA 2009, 2009-06, Milan, Italie
TypeCommunication / Conférence
Conference titleEFMA 2009
MetadataShow full item record
Abstract (EN)This paper contributes to the resolution of the rights offer paradox, using a database of French SEOs. We first document higher direct flotation costs, but also improved stock market liquidity after public offerings and standby rights relative to uninsured rights. We find that blockholder renouncements to subscribe to new shares and stock market liquidity are important determinants of flotation method choice. After controlling for endogeneity in the choice of flotation method, we find that public offerings are cost effective and more liquidity improving than standby rights whereas an uninsured rights offering is the best choice for low liquidity, closely held firms. Our results provide new insights as to why firms choose public offerings despite apparently higher costs.
Subjects / KeywordsBid-ask Spread; Public Offerings; Rights Issues; Flotation Costs; Flotation Method; SEO; Security Offering; Liquidity
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