Rights Issues in the Swedish Market: A Comparison between Insured and Uninsured Rights Issues

Abstract: The purpose of this thesis is threefold: to thoroughly investigate the characteristics of the Swedish market for rights issues 1986-2005 with a particular focus on the differences and similarities between insured and uninsured offers, to investigate the reasons behind the choice between an insured and an uninsured rights issue, and to examine how the abnormal return and discount following a rights issue is affected by whether the issue is insured or uninsured. Data from 254 issues by companies listed on the Stockholm Stock Exchange from the period 1986 to 2005 is used. We find that the use of rights issues has increased over the years and that practically the entire increase comes from insured rights issues. The main determinants for the choice between insured and uninsured are market capitalization, booming market conditions and ownership concentration. Our result to some extent indicates that the use of an insured rights issue is not interpreted as a certification of value, but overall we conclude that the Swedish market does not seem to consider the choice between insured and uninsured rights issues to be a strong determinant for the abnormal return. The average discount does not seem to vary systematically between the two rights issue methods.