Costly self-insurance of rights offerings

• Autores: T.X. Duong, Rajdeep Singh, Eng Joo Tan
• Localización: Journal of Business Finance & Accounting, ISSN-e 1468-5957, Vol. 42, Nº. 9-10, 2015, págs. 1251-1281
• Idioma: inglés
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• Resumen

  • We study how the underwriting decision of an equity rights offering is affected by the risk of offering failure. Firms can reduce failure risk by getting underwriting or by self-insuring through subscription price discounts and subscription precommitments. Self-insurance is generally regarded to be relatively costless, but we provide evidence from Singapore that is consistent with the existence of implicit costs. In particular, the existence of self-insurance costs implies that firms with better projects will have larger discounts and that firms with higher ownership concentration will have more precommitments. Hence, our results support costly self-insurance against issue failure as a factor in explaining the rights issue paradox.