The choice between rights offerings and private equity placements

Henrik Cronqvist and Mattias Nilsson ()
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Mattias Nilsson: Stockholm Institute for Financial Research (SIFR), Postal: Saltmätargatan 19A, SE-113 59 Stockholm, Sweden, http://www.sifr.org

No 452, SSE/EFI Working Paper Series in Economics and Finance from Stockholm School of Economics

Abstract: We develop and test a nested logit model to examine how firms choose between a rights offering and a private equity placement. We find that family-controlled firms avoid issue methods that dilute control benefits or subject them to more monitoring, in particular when the family’s control margin is small and the wedge between votes and capital is large. Control considerations also affect security design in equity issues. We also find that firms use private placements to reduce contracting and ex post holdup costs in new product market relationships. Finally, we find that firms with higher asymmetric information about firm value are more likely to involve underwriter certification in a rights offering, and to choose a private placement when information asymmetries are extreme.

Keywords: Seasoned equity offerings; Rights offerings; Private equity placements; Equity issue methods (search for similar items in EconPapers)
JEL-codes: G32 G34 (search for similar items in EconPapers)
Pages: 43 pages
Date: 2001-06-08, Revised 2004-11-01
New Economics Papers: this item is included in nep-acc, nep-cfn and nep-dcm
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Forthcoming in Journal of Financial Economics.

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Journal Article: The choice between rights offerings and private equity placements (2005)
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Persistent link: https://EconPapers.repec.org/RePEc:hhs:hastef:0452

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