Journal of Financial and Quantitative Analysis

Research Articles

Rights Offerings, Subscription Period, Shareholder Takeup, and Liquidity

Balasingham Balachandrana1, Robert Faffa2, Michael Theobalda3 and Tony van Zijla4

a1 La Trobe University, Graduate School of Management, Bundoora, Vic 3086, Australia.

a2 University of Queensland, Business School, Queensland 4072, Australia.

a3 University of Birmingham, Business School, University House, Edgbaston, Birmingham B15 2TT, UK, and Mifranthe Associates.

a4 Victoria University of Wellington, School of Accounting and Commercial Law, 23 Lambton Quay, Pipitea Campus, New Zealand.


We examine the role of shareholder takeup in rights offerings on the subscription period price reaction and liquidity. Our results indicate that takeup information is reflected in price adjustments over the subscription period and that quality-related information disclosed on the rights announcement date further impacts prices in this period. Higher shareholder takeup improves liquidity. We do find some evidence of inefficiencies in the adjustment process over the subscription period that, in part, is consistent with a model where markets are characterized by overconfident investors and that also articulates with takeup information arriving in the market.

(Online publication November 14 2011)


We gratefully acknowledge the helpful comments from Glenn Boyle, Craig Holden (the referee), Paul Malatesta (the editor), Peter Kein Pham, Tom Smith, and participants at the 13th Finsia-Melbourne Centre for Financial Studies Banking and Finance Conference in 2008, Finance and Corporate Governance Conference held in Melbourne in 2010, and Deakin University Seminar in 2010. We also gratefully acknowledge the research assistance provided by Arifur Khan, Eswaran Velayutham, and Berty Vidanapathirana, and the funding provided by an Australian Research Council Discovery grant (DP0664368) and a grant from the Melbourne Centre for Financial Studies.