Drivers of price reaction to rights issue announcements in the Kuwait Stock Exchange

Abstract

This study examines the drivers behind stock price reactions to announcements of rights issues by firms listed on the Kuwaiti Stock Exchange for the period 2003-2013. We find higher cumulative abnormal returns for firms that undertake larger issues, with the issue size reflecting the availability of favourable investment opportunities and their potential positive impact on firms' earnings. We also document a positive price reaction in firms that are affiliated with a family group. We interpret this as evidence that the proceeds of the rights offering would be employed effectively when the firm is controlled by a family firm. No evidence was found for the price pressure and pricing effects.

Does leverage level matter for return anomaly during rights issue announcements? The case of Islamic countries

“…This means that the CAR level for the pooled sample does not change according to the leverage level of companies. Findings of ANOVA analysis are in line with Tan et al (2002) and Alhashel and Alojayan (2015).…”

“…For example, the average participation rate by investors in rights issues is 64% in the USA. On the other hand, a positive excess return is reported in Japan by Kang and Stulz (1996), which is around 2.20% for (−1, 1) event window; in Greece by Tsangarakis (1996), which is about 3.90% for (−1, 0); in Singapore by Tan et al (2002), which is approximately 2% within 3-day event window; and in Kuwait by Alhashel and Alojayan (2015), which is around %5 for (−2, 2). Ariff et al (2007) assert that rights issue announcements can be perceived as favourable if the appetite for high growth exists in a country.…”

“…Authors conclude that highly leveraged companies, which announce rights issues, provide favourable signals for future growth. However, Tan et al (2002) and Alhashel and Alojayan (2015) assert that change in debt level does not affect the market reaction in Singapore and Kuwait. Iqbal (2008) reports that market reaction to the rights issues is more negative for those firms that announce to use the new capital for the debt reduction purpose rather than new investment projects.…”

The Intra-Industry Spillovers of Indonesian Right Offerings

“…In the literature, the right issues are often followed by the discussion on how the market responds to the offerings. Some researchers found a positive response to the issuance of rights (Alhashel and Alojayan, 2015;Ariff et al, 2007;Paskelian and Bell, 2010), while some others found a negative response (Akron, 2013; Barnes and Walker, 2006;Feng et al, 2018;Iqbal, 2008;Krishnan et al, 2010). Some researchers explain these different responses by a variety of approaches, including by associating them with variations in the motivation of right offerings among companies (Brisker et al, 2014;Kim and Purnanandam, 2014;Veld et al, 2018;Yang et al, 2016), variations of inherent attributes in the issuers (Chan and Walter, 2014;Chen, 2017;Dutordoir et al, 2018;Fu and Huang, 2016;Liu et al, 2016;Naveen et al, 2018), and variations of investor biases in responding to the rights (Devos et al, 2017;Dutta, 2017;Huang et al, 2016).…”