Seasoned Equity Offerings: The Choice of Method of Issue and Abnormal Returns in the Nordics
Abstract: This thesis aims to explain geographical differences in the choice of method of issue in seasoned equity issues ("SEOs") and the subsequent impact on abnormal returns. We analyze two different types of SEOs - rights issues and public offers - in the Nordic region, where the rights issue method is significantly more common than in other geographies. Firstly, the thesis analyzes abnormal returns following the announcement of a SEO. We find evidence that rights issues are followed by significantly more negative abnormal returns than open offers. In an attempt to explain why public companies in the Nordic region continue to prefer rights issues over public offers despite higher indirect costs, we assess if there is a relationship between the method of issue and shareholder concentration. We use shareholder take-up (the proportion of existing shareholders subscribing to the SEO) as a proxy for ownership concentration and hypothesize if SEOs with higher shareholder take-up display less negative abnormal returns. This study provides no evidence in favor of this argument. However, the average level of shareholder take-up is very high (circa 90%) in the Nordic region, which, despite the higher indirect costs associated with rights issues, provide some proof as to why the rights issue remains popular in the region. The strong ownership tradition in the Nordic countries provides widespread incentives to large shareholders to maintain a concentrated ownership structure. As a result, large shareholders continue to prefer non-dilute methods of raising new funds, like rights issues.
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