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

Authors

M. B. SLOVIN, College of Business Administration, Louisiana State University, Baton Rouge, LA 70803, United States, HEC School of Management, Paris, France
M. E. SUSHKA, HEC School of Management, Paris, France, College of Business, Arizona State University, Tempe, AZ 85287, United States
K. W. L. LAI, Department of Accounting and Finance, Lingnan University, Tuen Mun, Hong Kong

Document Type

Journal article

Source Publication

Journal of Financial Economics

Publication Date

8-1-2000

Volume

57

Issue

2

First Page

157

Last Page

190

Publisher

Elsevier

Keywords

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

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.

DOI

10.1016/S0304-405X(00)00054-4

Print ISSN

0304405X

Publisher Statement

Copyright © 2000 Elsevier Science B.V. Access to external full text or publisher's version may require subscription.

Full-text Version

Publisher’s Version

Language

English