The Choice of Seasoned-Equity Selling Mechanism: Theory and Evidence

Bjorn Eckbo () and Oyvind Norli ()

No 4833, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: Extending the Myers and Majluf (1984) framework, we present a model for the choice of seasoned-equity selling mechanism. A sequential pooling equilibrium exists which implies a positive market reaction to certain flotation strategies. We examine the model implications using the market reaction to issues on the Oslo Stock Exchange using the full range of flotation methods. The average market reaction is non-negative across all methods, and significantly positive for both rights offerings and private placements, as predicted. We also show that average long-run abnormal stock returns to OSE issuers are indistinguishable from zero, supporting the market rationality assumption underpinning the flotation game.

Keywords: Equity offering; Flotation method; Sequential equilibrium; Adverse selection; Rights offer; Underwriting (search for similar items in EconPapers)
JEL-codes: G20 G24 G30 G32 (search for similar items in EconPapers)
Date: 2005-01
New Economics Papers: this item is included in nep-fin and nep-fmk
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Working Paper: The choice of seasoned-equity selling mechanism: Theory and evidence (2004)
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