December 2008
Intermediate to advanced
520 pages
43h 42m
English
In this section, we examine the firm’s choice of issue method. We start with the so-called rights offer paradox first observed by Smith (1977). The paradox highlights the fact that a focus on direct issue costs alone fails to adequately explain the near disappearance of the rights offer method for large, publicly traded corporations in the U.S. We then examine how observed flotation method choices may minimize issue costs under asymmetric information and survey the empirical evidence on announcement effects of security offerings as a function of the flotation method.
With symmetric information between corporate insiders and outside investors, standard economic theory ...