Balashingham Balachandran, Robert Faff, Eswaran Velayutham - Monash University Michael Theobald - University of Birmingham. Seasoned Equity Offerings, Quality Signalling and Private Benefits of Control. Institutional Background in UK.
Seasoned Equity Offerings, Quality Signalling and
Private Benefits of Control
There are no limits on the offer proceeds for rights and open offerings, but, in the case of placements, the offer proceeds are limited to 5% p.a., or 7.5% per 3 years, of existing market capitalisation. However in the case of placings related to acquisitions or mergers the offer proceeds are limited to 10% (without shareholders approval).
Open offerings and placements normally have an upper limit of 10% on the discount permitted by UK listing rules unless the LSE is satisfied that the issuer is in severe financial difficulties or there are other exceptional circumstances, while there is no limit on the discount for rights offerings.
The ability to choose from
affords the management of British firms the opportunity to considerably enhance signals of quality in the context of the well-known asymmetric information models developed in the corporate finance literature.
Accordingly, using a large sample of all these SEO methods from the UK market, this study investigates the unique interaction between the renounceability of rights offerings, control dilution and existing shareholders takeup.
By focusing on these specific characteristics, we provide new empirical evidence on, and develop further insights regarding, the existing theory on the choice of seasoned equity offerings.