Long‐horizon abnormal performance following rights issues and placings: Additional evidence from the U.K. market

Abstract

We revisit the long‐horizon abnormal performance of U.K. firms following rights issues and placings over the period 1989–1997. We make the following contributions relative to prior research. First, we use, as far as we are aware, a more comprehensive data set of rights issues and placings than hitherto studied for the U.K. market. We thus exploit the fact that issuing new equity predominantly through rights issues is a feature of the U.K. equity market that differs from the U.S. and other markets, where public offers dominate seasoned equity issues. Second, we study both the pre‐ and post‐offer long‐horizon performance, complementing previous research that focuses only on announcement‐day wealth effects. Third, we apply various metrics and revisit the evidence of long‐horizon post‐offer underperformance reported in previous research. We find, however, little evidence of long‐horizon post‐offer underperformance for U.K. firms following issues of equity through rights issues or by placings.

Long-horizon event studies and event firm portfolio weights: Evidence from U.K. rights issues re-visited

“…For placing firms, the equal-weighted and value-weighted BHARs are À 3.29% and À 7.15%, respectively. Similar to the U.S. studies, Ho (2005) also finds that the calendar-time abnormal returns are smaller and Spiess and Affleck-Graves (1995) 1975-19891247 À6.10 a,# NA Loughran and Ritter (1995) 1970-1990 3702 À9.10 a,# NA Loughran and Ritter (2000) 1973-1996 6461 À5.64 b *** À 3.84 b *** Brav et al (2000) 1975-1992 3775 À3.90 a,# À 3.40 a,# À4.44 b *** À 1.68 b À2.28 c À 2.28 c ** Eckbo et al (2000) 1964-1995 3315 À4.80 a *** À 2.20 a À1.44 b À2.04 b Jegadeesh (2000) 1970-1993 2992 À4.90 a ** NA À5.40 b *** NA À3.72 c *** NA Mitchell and Stafford (2000) 1961-1993 4439 À2.70 a *** À 1.10 a À3.96 b *** À 0.36 b Panel B Japanese data Cai and Loughran (1998) 1971-19921389 À3.50 a ** NA Kang et al (1999) 1980-1988 888 À9.80 a *** NA Panel C U.K. data Levis (1995Levis ( ) 1980Levis ( -1988 À15.10 d *** NA Suzuki (2000) 1991-1996 689 À11.50 a *** NA This table provides brief details of selected prior papers that study the long-horizon performance of firms after issuing SEOs. It provides details about the sample period of the study and the type of weighting scheme used to construct portfolios.…”

“…In almost all of this previous research, very little justification is provided for the reliance, in a particular case, placed on either equal-or value-weighted event firm portfolios. Ho (2005) is a recent study focusing on the long-horizon abnormal performance following U.K. rights issues and placings. His results show that, using size/book-to-market matched portfolios as benchmarks, the equal-weighted average annualised BHAR is À 4.82% and the value-weighted average annualised BHAR is À 5.28% for rights issuers.…”

“…less statistically significant than the buy-and-hold abnormal returns. Ho (2005) reports that the negative long-horizon abnormal performance following rights issues and placings using CTAR approach is about À 2.22% per annum. As for the pre-offer stock price performance, Ho (2005) also finds positive abnormal performance that the average annualised BHAR is about 5.99% for rights issuers and 13.64% for placing firms.…”

Environmentally Oriented Energy Policy and Stock Returns: An Empirical Analysis

“…Therefore, another direction for further research is the application of long-term event study approaches as they were developed and applied in modern financial economics (e.g., Barber and Lyon, 1997, Kothari and Warner, 1997, Lyon et al, 1999, Mitchell und Stafford, 2000, Ho, 2005. A final direction for further research is the analysis of the robustness of our estimation results concerning the unreliable time series of daily stock returns (particularly regarding the examined renewable energy corporations).…”

The choice between bookbuilding and fixed-price offering: Evidence from SEOs in Taiwan

“…For example, Japan allowed the use of bookbuilding in 1997 as an alter- 13 Barnes and Walker (2006), Ho (2005), and Slovin et al (2000) offer further details for a UK placing. 14 Smith (1977) report an average underpricing of only 0.5% from 1971 to 1975, while Loderer et al (1991) find an average underpricing of 1.4% for the period 1980-1984.…”