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Rights Offerings and Expropriation by Controlling Shareholders
Author(s) -
Fong WaiMing,
Lam Kevin C.K.
Publication year - 2014
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/jbfa.12069
Subject(s) - expropriation , shareholder , underwriting , business , agency (philosophy) , accounting , monetary economics , value (mathematics) , law and economics , finance , market economy , economics , corporate governance , philosophy , epistemology , machine learning , computer science
Abstract We investigate rights issues and open offers in Hong Kong. We observe that the greater the severity of firms’ management‐agency problems, the more unfavourably shareholders tend to react, leading to more negative cumulative abnormal returns or rights forfeiture. Controlling shareholders do not forfeit rights, and may increase their percentage ownership at deep price discounts by underwriting rights offerings. Our results suggest that, although certain rights offerings can be described as value‐enhancing, many other rights offerings closely resemble the expropriation activities of controlling shareholders.