On Shareholders' Indifference to the Proceeds Price in Preemptive Rights Offerings

Gary I. Wakoff

Journal of Financial and Quantitative Analysis, 1973, vol. 8, issue 5, 835-836

Abstract: It has been discovered in the context of various stock valuation models (see [1], [2] and [4]) that the shareholder is indifferent to the proceeds (or subscription) price chosen in a preemptive rights offering of equity capital, provided that the total equity capital raised by the offering is fixed. In this note we generalize this result to any stock valuation model in which arbitrage is present and which values only the total amount of the new investment, that is, places no value on holding more (or fewer) shares with a lower (or higher) market price.

Date: 1973
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