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Do Underwriters Certify Value? Evidence from UK Rights Issues and Open Offers
Author(s) -
Armitage Seth
Publication year - 2002
Publication title -
journal of business finance and accounting
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.282
H-Index - 77
eISSN - 1468-5957
pISSN - 0306-686X
DOI - 10.1111/1468-5957.00468
Subject(s) - underwriting , issuer , certification , equity (law) , business , value (mathematics) , accounting , actuarial science , economics , finance , law , political science , management , computer science , machine learning
Eckbo and Masulis (1992) and Slovin, Sushka and Lai (2000) have proposed that underwriters of seasoned equity offers certify issuer value. The study tests predictions resulting from these papers and finds little evidence from UK rights issues and open offers that underwriting banks certify. The main purpose of underwriting appears to be simply to guarantee the proceeds. There is a positive reaction to open offers (a type of private placing) but this is unlikely to be due to underwriter certification. There is a large loss of value for companies announcing deeply discounted offers, which is attributed to release of bad news on announcement