Discounts in placing pre-renounced shares in rights issues

Seth Armitage

    Research output: Contribution to journalArticlepeer-review

    17 Citations (Scopus)


    The paper presents evidence from UK rights issues on the discounts at which large blocks of new shares plus rights are sold. The shares are renounced by the shareholders entitled to them and placed with passive investors at substantial discounts of around 8% to the expected ex-rights midpoint price of the existing shares. Tests indicate that the discounts arise because of uncertainty about issuer value and inelastic demand for the shares rather than because the issuing companies are overvalued. The finding that selling renounced shares is costly removes an apparent advantage of rights issues compared with open offers and private placings. © 2007 Blackwell Publishing Ltd.

    Original languageEnglish
    Pages (from-to)1345-1369
    Number of pages25
    JournalJournal of Business Finance and Accounting
    Issue number7-8
    Publication statusPublished - Sept 2007


    • Long-run abnormal returns
    • Offer-price discounts
    • Open offers
    • Private placings
    • Rights issues


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