Equity issuance methods and dilution

Mike Burkart and Hongda Zhong

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: We analyze rights and public offerings when informed shareholders strategically choose to subscribe. Absent wealth constraints, rights offerings achieve the full information outcome and dominate public offerings. When some shareholders are wealth constrained, rights offerings lead to more dilution of their stakes and lower payoffs, despite the income from selling these rights. In both rights and public offerings, there is a trade-off between investment efficiency and wealth transfers among shareholders. When firms can choose the flotation method, either all firms choose the same offer method or high and low types opt for rights offerings, while intermediate types select public offerings.

JEL-codes: G32 (search for similar items in EconPapers)
Pages: 53 pages
Date: 2023-02-01
New Economics Papers: this item is included in nep-cfn and nep-fmk
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Published in Review of Corporate Finance Studies, 1, February, 2023, 12(1), pp. 78 – 130. ISSN: 2046-9128

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http://eprints.lse.ac.uk/117895/ Open access version. (application/pdf)

Related works:
Journal Article: Equity Issuance Methods and Dilution (2023)
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Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:117895

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