Effectiveness of pre-commitments on reducing asymmetrical information in equity issues. Issue 12 (12th August 2016)

• Record Type: Journal Article
• Authors: Parreño, J.; Ruiz, F.; Casanueva, C.
• Is Part Of: Applied economics letters. Volume 23:Issue 12(2016)
• Page Start: 863
• Page End: 867
• Publication Date: 2016-08-12
• Subjects: Equity issues' returns -- significant shareholders -- information asymmetry -- signalling; D82 -- G14 -- G32 -- G31; Economics -- Periodicals; Economics, Mathematical -- Periodicals; 330
• DOI: 10.1080/13504851.2015.1114573
• Languages: English
• ISSNs: 1350-4851

Abstract

ABSTRACT: The aim of this article is to find out whether or not consideration of significant shareholders announcement of intention to exercise subscription rights makes a difference in eliminating or reducing the effects of asymmetrical information in equity offerings with pre-emptive rights on the Spanish Stock Market. For the 17 years of equity issues covered, we find that the type of underwriting arrangements has not a statistically significant impact on the issues' Excess Risk Adjusted Return. The main contribution of this study is the finding of a statistically significant negative impact on returns either when the significant shareholders indicate their intention not to subscribe or when not enough information is provided about their intention. We also find a statistically significant reinforcing negative effect on returns in the case of simultaneous lack of commitment on the part of significant shareholders, and non-underwritten equity issues.