A Rent-Protection Explanation for SEO Flotation-Method Choice

Xueping Wu; Zheng Wang; Jun Yao

doi:10.1017/S0022109016000314

Author(s)

Xueping Wu
Zheng Wang
Jun Yao

Related Research Unit(s)

Department of Economics and Finance

Detail(s)

Original language	English
Pages (from-to)	1039-1069
Journal / Publication	Journal of Financial and Quantitative Analysis
Volume	51
Issue number	3
Publication status	Published - Jun 2016

Link(s)

DOI	DOI https://doi.org/10.1017/S0022109016000314 Final Published version
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Link to Scopus	https://www.scopus.com/record/display.uri?eid=2-s2.0-84978114046&origin=recordpage
Permanent Link	https://scholars.cityu.edu.hk/en/publications/publication(9bdec6a6-9020-4132-9400-3aa4676573cc).html

Abstract

We model how a rent-protection motive drives the choice of flotation method in new equity issuance between two polar cases: rights issues and cash offers. Unexpected new blockholders would emerge in control-diluting cash offers and share in jealously guarded control benefits. But rights issues help the incumbent controlling shareholders avoid control dilution and safeguard their private benefits. Under asymmetric information about private benefits, the choice of flotation method can convey information about hidden private benefits and hence firm value. Our model can explain even a negative announcement effect of rights issues, and it supports not just one but three important equilibriums.

Citation Format(s)

[ RIS ] [ BibTeX ]

A Rent-Protection Explanation for SEO Flotation-Method Choice. / Wu, Xueping; Wang, Zheng; Yao, Jun.

In: Journal of Financial and Quantitative Analysis, Vol. 51, No. 3, 06.2016, p. 1039-1069.

Research output: Journal Publications and Reviews (RGC: 21, 22, 62) › 21_Publication in refereed journal › peer-review

Wu, X, Wang, Z & Yao, J 2016, 'A Rent-Protection Explanation for SEO Flotation-Method Choice', Journal of Financial and Quantitative Analysis, vol. 51, no. 3, pp. 1039-1069. https://doi.org/10.1017/S0022109016000314

Wu, X., Wang, Z., & Yao, J. (2016). A Rent-Protection Explanation for SEO Flotation-Method Choice. Journal of Financial and Quantitative Analysis, 51(3), 1039-1069. https://doi.org/10.1017/S0022109016000314

Wu X, Wang Z, Yao J. A Rent-Protection Explanation for SEO Flotation-Method Choice. Journal of Financial and Quantitative Analysis. 2016 Jun;51(3):1039-1069. doi: 10.1017/S0022109016000314

Wu, Xueping ; Wang, Zheng ; Yao, Jun. / A Rent-Protection Explanation for SEO Flotation-Method Choice. In: Journal of Financial and Quantitative Analysis. 2016 ; Vol. 51, No. 3. pp. 1039-1069.