|Effects on stock price reaction of rights issues in Hong Kong
|Stocks -- Prices -- China -- Hong Kong
Hong Kong Polytechnic University -- Dissertations
Department of Accountancy
|iii, 64 leaves : ill. ; 30 cm
|This study is to investigate the announcement effect on the stock price reaction of rights issues in Hong Kong. The findings show that the average abnormal return at the announcement of rights issues is significantly negative. Hong Kong market reacts negatively to the announcement of rights issues. It is consistent with the similar findings in the U.S. and U.K. Investors in Hong Kong, U.K. and U.S. view a rights issue as a negative signal to a company's value. The correlation of the average abnormal return at the announcement of rights issues with the major terms of rights offerings and the market conditions at the time of announcement is examined by the multivariate regressions. The major terms of rights issues made known to the investing public include the size of rights issues, subscription price discount, substantial shareholders ' subscription pre-commitment (i.e., the number of new shares irrevocably agreed to be taken up by substantial shareholders of a listed issuer at the time of announcement), the use of the proceeds, ownership concentration and free warrants attached, if any. The results of the multivariate regressions indicate a significant and negative correlation between the average abnormal return at the announcement and subscription price discount. A deep subscription price discount conveys negative information to investors in Hong Kong. The results also indicate positive association between the average abnormal return at the announcement and the size of rights issues. Large size of rights offerings is not found to be an explanatory variable for the negative announcement effect of rights issues in Hong Kong. This study also explores to see the stock price reaction over the two different post-announcement periods. The results suggest that there are no negative post-announcement drift.
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