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Stock market liquidity and the rights offer paradox

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Date
2009
Dewey
Organisation et finances d'entreprise
Sujet
Bid-ask Spread; Public Offerings; Rights Issues; Flotation Costs; Flotation Method; SEO; Security Offering; Liquidity
JEL code
G32
Conference name
EFMA 2009
Conference date
06-2009
Conference city
Milan
Conference country
Italie
URI
https://basepub.dauphine.fr/handle/123456789/2939
Collections
  • DRM : Publications
Metadata
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Author
Koenig-Matsoukis, Laure
Riva, Fabrice
Ginglinger, Edith
Type
Communication / Conférence
Item number of pages
28
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.

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