Rights Issues: The Importance Attached by Private Shareholders to the Issue Price in a Rights Issue
Abstract
As explained by the majority of text books that deal with the subject, perfect market theory illustrates that the issue price in a rights issue is irrelevant to the short term wealth of the shareholder. Empirical evidence would suggest that stock markets react to rights issues in a manner that is not inconsistent with the theoretical model. A rights issue can be perceived to be part new issue and part scrip issue, and the greater the discount, that is, the lower the subscription price, the greater the scrip issue element. Most people would accept that a scrip issue only cuts the corporate pie into smaller pieces and does not represent a fundamental change to the net wealth of the shareholder.
Citation
Keef, S.P. (1982), "Rights Issues: The Importance Attached by Private Shareholders to the Issue Price in a Rights Issue", Management Research News, Vol. 5 No. 2, pp. 15-16. https://doi.org/10.1108/eb027803
Publisher
:MCB UP Ltd
Copyright © 1982, MCB UP Limited