A Rent Protection Explanation for SEO Flotation Method Choice
Research output: Conference Papers (RGC: 31A, 31B, 32, 33) › 31A_Invited conference paper (refereed items) › Yes › peer-review
Author(s)
Related Research Unit(s)
Detail(s)
| Original language | English |
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| Publication status | Published - 10 Jun 2014 |
Conference
| Title | City University of Hong Kong Finance Conference |
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| Place | China |
| Period | 10 - 11 June 2014 |
Link(s)
| Permanent Link | https://scholars.cityu.edu.hk/en/publications/publication(c1e92165-2339-49a9-b25f-e21d023fce57).html |
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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 supports not just one but three important equilibriums.
Citation Format(s)
A Rent Protection Explanation for SEO Flotation Method Choice. / Wu, Xueping; Wang, Zheng; Yao, Jun.
2014. City University of Hong Kong Finance Conference, China.Research output: Conference Papers (RGC: 31A, 31B, 32, 33) › 31A_Invited conference paper (refereed items) › Yes › peer-review
