The ex-date effect of rights issues: evidence from the Italian stock market

Enrica Bolognesi and Angela Gallo

Applied Financial Economics, 2013, vol. 23, issue 2, 149-164

Abstract: We investigate the effects on stock prices around the Ex-rights Dates (EDs) of rights offerings by firms listed on the Italian Stock Exchange. We focus on the period from January 2007 to April 2011, whereby several operations have been highly dilutive. Highly dilutive rights offerings show high subscription price discount of the new equities issued with respect to the prevailing stock market price. The anomalous behaviour of the prices attracted the attention of the Italian Authority for the Financial Markets (CONSOB). Our results demonstrate a significant average abnormal return of 5.85% on the ex-rights date, which is mostly driven by highly dilutive operations. In particular, we try to explain abnormal returns considering several variables related to the issue and to the issuer. We also control for differences across sectors. We find that the price-adjustment coefficient K explains most of the abnormal returns. We highlight that the stock price adjustment at the ED is so relevant in the case of highly dilutive operations to be similar to a stock splits and could have puzzled investors about the stock's fair price. Furthermore, we examine the consequences on the option rights market, the trading volume and the Italian derivative market.

Date: 2013
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DOI: 10.1080/09603107.2012.711936

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