Discounts, Commitments, and the Attractivity of Rights Offerings: A Swedish Example

Abstract: We examine the effect of discounts, subscription commitments, and underwriting commitments on the ex-post subscription rate of rights offerings, based on a sample of 164 manually collected rights issues from Swedish stock exchanges in the period ranging from January 1, 2020, to December 31, 2021. Our analysis draws on utility and signaling theory, and our findings determine a statistically significant positive effect of the subscription price discount to the theoretical ex-rights price on the ex-post subscription rate variable which we hold as a proxy for rights offering attractivity. We are unable to observe a statistically significant relationship between aggregate commitment coverage and the ex-post subscription rate of an offering, and thus find no evidence for positive signaling effects of such offerings. We conclude that rights offering commitments, despite their lack of signaling value, are efficient instruments for guaranteeing proceeds, and that financial managers thereby need not focus solely on the proven effects of discounts to certify the value of rights issues.