Block Buying and Choice of Issue Method in UK Seasoned Equity Offers

Armitage, Seth

doi:10.1111/j.1468-5957.2010.02188.x

Cited by 25 publications

(20 citation statements)

References 37 publications

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“…However, Barnes and Walker (2006) find that ownership structure after a rights issue is relatively unaltered, while placing allows other investors to purchase new shares, resulting in diffused ownership. To consider this issue, following Armitage (2010), this study uses a dummy variable, rights, which takes the value of one if a firm use a rights offer or an open offer as their equity issue method and zero if it places or uses a combination of a placement and an open offer. In a rights-preserving offer, existing shareholders are entitled to preemptive rights to purchase new shares in proportion to their holdings.…”

Section: Other Determinants Of Capital Structure and Financing Decisionsmentioning

confidence: 99%

Ownership, capital structure and financing decision: Evidence from the UK

Sun

Ding

Guo

et al. 2016

The British Accounting Review

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(2016) 'Ownership, capital structure and nancing decision : evidence from the UK.', British accounting review., 48 (4). pp. 448-463. Further information on publisher's website:https://doi.org/10.1016/j.bar.2015.04.001Publisher's copyright statement: NOTICE: this is the author's version of a work that was accepted for publication in The British Accounting Review. Changes resulting from the publishing process, such as peer review, editing, corrections, structural formatting, and other quality control mechanisms may not be re ected in this document. Changes may have been made to this work since it was submitted for publication. A de nitive version was subsequently published in The British Accounting Review, Volume 48, Issue 4, December 2016, 10.1016/j.bar.2015.04.001. Use policyThe full-text may be used and/or reproduced, and given to third parties in any format or medium, without prior permission or charge, for personal research or study, educational, or not-for-pro t purposes provided that:• a full bibliographic reference is made to the original source • a link is made to the metadata record in DRO • the full-text is not changed in any way The full-text must not be sold in any format or medium without the formal permission of the copyright holders.Please consult the full DRO policy for further details. show a non-monotonic relation between MSO and the debt ratio, supporting two competing theories: interest alignment theory and the management entrenchment hypothesis. Nevertheless, institutional ownership is found to be positively related to firm leverage levels. Our results further suggest that firms with concentrated MSO decrease their leverage by increasing the probability of issuing equity over bonds, an effect strengthened during hot market periods.

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Section: Other Determinants Of Capital Structure and Financing Decisionsmentioning

confidence: 99%

Ownership, capital structure and financing decision: Evidence from the UK

Sun

Ding

Guo

et al. 2016

The British Accounting Review

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“…Evidence referring to UK SEO indicates that the placing process in placings and open offers may result in a better certification of issuer value than that occurring in rights issue (Armitage 2010). Likewise, Slovin, Sushka, in line with a generalised Myers-Majluf model, where positive announcement reactions (change in asymmetric information) arise mainly from growth opportunities (Wu, Wang, and Yao 2005).…”

Section: Introductionmentioning

confidence: 98%

“…1 The new shares are placed with specific investors and could be subject to standby underwriting, to private negotiation with the management or to accelerated book-building (Slovin, Sushka, and Lai 2000;Armitage 2010). 2 The offer price in pure placings is set before the announcement, becomes public at the announcement day and does not alter thereafter (similar to open offers).…”

Section: Introductionmentioning

confidence: 99%

Timing, earnings management and over-reaction around pure placings

Dionysiou¹

2014

The European Journal of Finance

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This paper provides new evidence about firms conducting pure placings in the UK. It examines their abnormal performance (stock and operating), earnings management (accrual and real activities) and abnormal growth prospects for up to three years surrounding the event. It questions whether (i) timing, (ii) earnings management and/or (iii) over-reaction hypotheses can explain these performance, earnings quality and growth paths. The results document that pure placing firms have high earnings quality and abnormally high growth opportunities at the announcement. For this reason, the market is overenthusiastic. It expects more than what is eventually fulfilled, in line with the over-reaction hypothesis. Weak evidence that placing firms may exploit market timing is noted, whilst there is no supportive evidence of earnings management. These findings distinguish the earnings quality and growth opportunities of pure placing firms from that of firms conducting open offers, firm commitment offers and other seasoned equity offerings (SEO) that are not private placements, for which prior evidence reports mainly timing and/or earnings management prior to the event. This paper facilitates a better understanding of UK SEO. argue that firms conducting placings are of higher quality than those conducting rights issues. These findings in relation to common features in the institutional settings between placings and open offers suggest similar implications for pure placings and open offers. However, relevant evidence is limited. Strong (2009a, 2009b) provide evidence that open offer firms underperform in the years following the announcement, mainly due to earnings management in the year prior to the event. Slovin, Sushka, and Lai (2000) characterise placings as similar to US bought deals, for which evidence also suggests post-offer long-run underperformance due to timing and/or earnings management in the year prior to the event (Loughran and Ritter 1997;Lee 1997;Teoh, Welch, and Wong 1998;Cohen and Zarowin 2010). 3 Post-SEO long-run underperformance is, in fact, in line with the Myers and Majluf (1984) miss-valuation problem. A firm will issue equity only if the new stock is relatively overvalued (SEO proceeds exceed the benefits of their use). If the market ignores this relative miss-valuation at the announcement, it will realise its mistake in the long-run. This leads to negative postoffer abnormal performance. It is also possible that the market under-or over-reacts to an SEO announcement. For example, the market reacts negatively to bought deal announcements whilst performance continues to deteriorate over the long-run. Hence, bought deals are associated not only with timing/earnings management, but also with market underreaction (Loughran and Ritter 1997). In contrast, the market appears to over-react to the announcement of a private placement due to high firm growth opportunities (Hertzel et al. 2002). Announcement reactions are positive, long-run post-offer abnormal returns (AR) turn negative and there is no evidence of ea...

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“…Eckbo and Masulis, 1992;Kothare, 1997). Unlike US firms, British firms prefer the use of open offers and placings for their seasoned equity offerings over the use of rights offers (Armitage, 2010). A placing is the UK equivalent of a firm commitment offering.…”

Section: Rights Offeringmentioning

confidence: 99%

Wealth effects of convertible-bond and warrant-bond offerings: a meta-analysis

Rahim

Goodacre

Veld

2012

The European Journal of Finance

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Abstract:We review the literature on wealth effects associated with the announcements of convertible bond and warrant-bond offerings. The findings of 35 event studies, which include 84 sub-samples and 6,310 announcements, are analysed using meta-analysis. We find a mean cumulative abnormal return of -1.14% for convertibles compared with -0.02% for warrant-bonds, the significant difference confirming a relative advantage for warrantbonds. Abnormal returns for hybrid securities issued in the United States are significantly more negative than those issued in other countries. In addition, issuing hybrid securities to refund debt does not seem to be favoured by investors. Finally, several factors identified as important by theory or in prior research are not significant within our cross-study models, suggesting that more evidence is needed to confirm whether they are robust.3

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Block Buying and Choice of Issue Method in UK Seasoned Equity Offers

Cited by 25 publications

References 37 publications

Ownership, capital structure and financing decision: Evidence from the UK

Ownership, capital structure and financing decision: Evidence from the UK

Timing, earnings management and over-reaction around pure placings

Wealth effects of convertible-bond and warrant-bond offerings: a meta-analysis

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