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Information asymmetry and the choice between rights issue and private placement of equity

Bipin Sony and Saumitra Bhadurib ()
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Saumitra Bhadurib: Madras School of Economics

Authors registered in the RePEc Author Service: Saumitra N. Bhaduri ()

BASE University Working Papers from BASE University, Bengaluru, India

Abstract: This study examines the role of information asymmetry in the choice between rights issue and private equity placement from an important emerging market- India. In the post IPO scenario, Indian firms issue equity mainly through private placements as well as rights issues and follow-on public offers are negligible. We argue that problems associated with information asymmetry trickles down to all levels of equity issues. The outcome of this empirical exercise shows that rights issuers typically face lesser degree of information asymmetry. Further, private placements are chosen by firms facing higher information problems to circumvent information costs. The results remain invariant even after segregating the qualified institutional placements from private equity placement as the firms with information disadvantage choose to place equity privately.

Keywords: Capital structure; Information Asymmetry; Rights Issue; Private placement of Equity; Emerging economy (search for similar items in EconPapers)
JEL-codes: G32 (search for similar items in EconPapers)
Pages: 30 pages
Date: 2020-10
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