Rights issues serve as a critical tool in the field of corporate finance, enabling companies toraise new capital while offering existing shareholders the opportunity to maintain theirproportional ownership stakes without dilution. This study aims to study the impact of therights issue discount on the share price performance within the Nordic markets, focusing onshort- and medium-term effects post-rights issuance. Furthermore, the study also seeks toprovide a nuanced understanding of how stock returns of firms with different characteristicsare impacted by rights issue discounts. The empirical framework employs an event studymethodology using different regression model specifications, to analyze a sample of 90Nordic companies listed on the Nasdaq OMX exchange over the period from 2014 to 2023.When controlling for firm-specific characteristics, the findings suggest that greater discountshave a slight adverse effect on shareholders in the short term following a rights issueannouncement. The effect on returns is estimated to be approximately -0.5 percentage pointfor each 1 percentage point increase in discounts over a 6 month period; however, no sucheffect is observed over longer time periods. This violates concepts of efficient markets whichpredict no such sustained trends. It suggests that investors perceive deeper discounts asindicative of overvaluation or underlying issues with the company, in turn underminingconfidence in the post-announcement period. However, additional robustness tests impliedthat the correlation between rights issue discounts and negative returns is caused by outliersin the data. The nuanced findings are of practical relevance for boards of directors, corporatefinance advisors as well as shareholders.
| Identifer | oai:union.ndltd.org:UPSALLA1/oai:DiVA.org:su-231414 |
| Date | January 2024 |
| Creators | Bournobuke, Marian, Byström, Erik |
| Publisher | Stockholms universitet, Finansiering |
| Source Sets | DiVA Archive at Upsalla University |
| Language | English |
| Detected Language | English |
| Type | Student thesis, info:eu-repo/semantics/bachelorThesis, text |
| Format | application/pdf |
| Rights | info:eu-repo/semantics/openAccess |
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