Title

Costly Self-Insurance of Rights Offerings

Publication Type

Journal Article

Publication Date

11-2015

Abstract

We study how the underwriting decision of an equity rights offering is affected by the risk of offering failure. Firms can reduce failure risk by getting underwriting or by self-insuring through subscription price discounts and subscription precommitments. Self-insurance is generally regarded to be relatively costless, but we provide evidence from Singapore that is consistent with the existence of implicit costs. In particular, the existence of self-insurance costs implies that firms with better projects will have larger discounts and that firms with higher ownership concentration will have more precommitments. Hence, our results support costly self-insurance against issue failure as a factor in explaining the rights issue paradox.

Keywords

rights, paradox;failure, seasoned equity offerings

Discipline

Corporate Finance

Research Areas

Finance

Publication

Journal of Business Finance and Accounting

Volume

42

Issue

9-10

First Page

1251

Last Page

1281

ISSN

0306-686X

Identifier

10.1111/jbfa.12168

Publisher

Wiley: 24 months

Additional URL

http://dx.doi.org/10.1111/jbfa.12168

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