واکنش بازار به ارائه حقوق "شیرین نشده" و "شیرین" در بازار نوظهور سهام اروپا

This research investigates the market reaction to both “unsweetened” (plain) and “sweetened” (with simultaneous distribution of bonus issues) rights offerings in the Istanbul Stock Exchange. Consistent with previous U.K. and U.S. evidence, although with larger magnitude, the announcement day abnormal returns for “unsweetened” rights offerings are negative and significant, suggesting that such issues convey unfavorable information about the future operating performance, investment opportunities, liquidity and dividend policy. In contrast, for “sweetened” rights offerings, the abnormal returns are positive. The empirical results do not provide evidence for the enhanced trading liquidity effect (the “sweetener” split effect) and for the overvaluation signaling effect.

The market reaction to seasoned equity offerings has been the focus of a significant number of empirical investigations in developed capital markets, especially in the U.S. where corporations predominately use firm commitment public offerings in issuing seasoned equity. Empirical studies in these capital markets show significant negative announcement returns conveying negative signals about the firm value. Even though rights offerings are rarely used in the U.S., an average negative announcement effect of −2% is observed.1 In the U.K., continental Europe and in many emerging markets, rights offering is the primary flotation method. Slovin et al.'s (2000) study on “insured” and “uninsured” rights offerings in the U.K. reports negative announcement returns of −2.9% and −5% respectively. Similarly, Gajewski and Ginglinger (2002), and Marsden (2000) find negative announcement effects for the French and New Zealand corporations respectively. However, in other markets such as Switzerland, Japan, Malaysia, Korea, Greece, Germany and Norway, several studies report positive announcement effects (e.g., Loderer and Zimmermann, 1988, Kang and Stulz, 1996, Salamudin et al., 1999, Kang, 1990, Tsangarakis, 1996, Gebhardt and Heiden, 1998 and Bohren et al., 1997). Several hypotheses have been put forward to explain the market reaction to seasoned equity issues, including adverse selection and signaling effects associated with information asymmetries, agency costs of free cash flow, wealth transfers between classes of security holders, and moral hazard problems in lowering managerial stock ownership. The signaling hypothesis appears to be the most developed theoretically and supported empirically (e.g., Myers and Majluf, 1984). However, this hypothesis and others do not completely explain the unfavorable/favorable market reaction evidence to equity issues in different institutional settings. Investigation of market reaction and underlying motivations in different institutional and geographical settings makes this research potentially enlightening, especially for the managers of multinational corporations. There is only a limited amount of research on market reaction to rights offerings in emerging markets that have the following typical institutional settings: (1) Corporations can only use rights offerings in their seasoned equity issues; (2) there is a lack of organized secondary market for the rights; (3) there is a low diffusion of ownership; (4) there is a weak commercial paper market; and (5) there are limited financing alternatives for corporations. The Istanbul Stock Exchange (ISE) is an emerging European capital market with these institutional characteristics. Seasoned equity issues are called “paid-in capital increase” issues in the Turkish capital market. Like in the rest of Europe, rights offerings are the norm in the ISE. Plain rights offerings are called “unsweetened” rights offerings and rights offerings with simultaneous distribution of bonus issues are called “sweetened” rights offerings in the ISE. Bonus issues are similar to stock dividends in the U.S., but they are not financed from retained earnings and/or distributable profit. Bonus issues in Turkey are mainly financed by using the “revaluation reserve”, an equity account in which the fixed assets are adjusted for inflation by a constant ratio announced by the Ministry of Finance periodically.2 To a certain extent, the balance sheets are adjusted for the persistent inflation in Turkey by using the revaluation reserve. This research investigates the price behavior of “unsweetened” and “sweetened” rights offerings during the announcement period and tries to shed light on the motivations and characteristics of corporations using these two types of rights offerings. The market reaction to clean samples of “unsweetened” and “sweetened” rights offerings is investigated for the period 1994–1999. The results show large negative abnormal returns of −7.1% during the announcement period of “unsweetened” rights offerings. These results are similar to the U.S. and the U.K. where the abnormal returns are between −2% and −5% (e.g., Masulis and Korwar, 1986 and Slovin et al., 2000). Interestingly, for “sweetened” rights offerings, a positive cumulative market reaction of 2.0% is found for the first three days during the announcement period. For both “unsweetened” and “sweetened” rights offerings, no statistically significant reversal trend is observed in the post-event period. The regression results indicate a positive relationship between the price change and the relative size of the equity issue, suggesting an issue size effect for the “sweetened” rights offerings, but not for the “unsweetened” rights offerings. The results show that corporations issuing “sweetened” rights offerings have better operating performance, cash position, investment opportunities and dividend policy relative to the corporations issuing “unsweetened” rights offerings. “Unsweetened” rights offering corporations are in a cash tight position with low market valuation. The operating performance and dividend policy measures for the “sweetened” rights offering corporations have positive signaling content only in the announcement year and not in the following year. This finding is not surprising in the unstable economic and political environment during the sample period and has signaling value for the ISE investors who are typically short-term investors. In both types of offerings, empirical support is not found for the overvaluation signaling effect as well as for the enhanced trading liquidity effect (the “sweetener” split effect). The rest of the article is organized as follows: Section 2 discusses the tested effects during the announcement. Section 3 describes the data and methodology followed by the empirical results in Section 4. Section 5 presents the concluding remarks.

This research investigates the market reaction to both “unsweetened” (plain) and “sweetened” (with simultaneous distribution of bonus issues) rights offerings in a unique institutional environment. The Istanbul Stock Exchange is an emerging European market where: (1) Corporations are closely held; (2) seasoned equity issues are almost without exception rights offerings; (3) the rights offerings are usually accompanied by bonus issues; (4) rights offerings are uninsured and fully subscribed; (5) the rights offerings as a percentage of the outstanding paid-in capital is significantly higher relative to the percentages in developed capital markets; (6) there is a uniform information disclosure procedure; (7) the market is predominately controlled by short-term investors and is highly volatile; and (8) there is a problem of persistent inflation. Within these institutional settings, the characteristics and motivations of corporations issuing new equity through these two offering methods are also investigated. Using two clean samples of “unsweetened” and “sweetened” rights offerings for the period 1994–1999, empirical evidence shows that “unsweetened” rights offerings announcements result in a negative cumulative mean abnormal market reaction (CAR(0, +5)) of −7.1%. “Sweetened” rights offerings announcements result in a positive cumulative market reaction of 2.0% for the period (0, +2), but later on, this cumulative positive market reaction is reversed by subsequent statistically insignificant negative mean abnormal returns on Days 3–5. Overall, the cumulative abnormal return for the period (0, +5) is positive, but statistically insignificant. While the “unsweetened” rights offerings announcements result in a consistently negative market reaction, the “sweetened” rights offerings announcements result in a temporary positive reaction. Further research can be carried out on the issue of long-term stock performance of “unsweetened” and “sweetened” rights offerings corporations in order to test whether the preceding short-term stock performances hold in the long-run. Similar to the market reaction results in developed countries, there is a negative announcement effect for “unsweetened” rights offerings, but to a greater magnitude. However, the negative market reaction is not due to the overvaluation signal as found in many developed markets but is due to the unfavorable information signaling effect. The times series examination of market-to-book ratio around the announcement fiscal year does not provide any evidence for the overvaluation signal. Overall, the “unsweetened” rights offering corporations are in cash tight position with low market valuation and the raised cash is likely to be used in solving the cash problem as well as in lowering the financial leverage. Moreover, these corporations tend to omit dividends and continue omitting dividends after the offering. The positive announcement effect in “sweetened” rights offerings provides some empirical evidence for the favorable information signaling effect. Corporations offering “sweetened” rights offerings have better operating performance, cash position and investment opportunities relative to their industry peers as well as relative to “unsweetened” rights offering corporations. At the same time, rights offerings accompanied by bonus issues signal positive operating performance and dividend policy only in the announcement year. Bonus issues are regarded as “sweeteners” by investors, and corporations issue bonus shares simultaneously with the rights offerings in order to make the offerings more attractive. Typically, corporations in the ISE distribute cash dividends around the ex-rights day and investors use the dividend income to pay for the “sweetened” rights offering. In the Turkish market, the resulting transaction of using the dividend income to pay for the rights offering is characterized as a “split” resulting in a substantial increase in the number of free float shares (i.e., the “sweetener” split effect). However, the resulting transaction is only similar to a stock split in terms of distribution ratio, but not in terms of accounting standards. Investors welcome the “sweetened” rights offerings announcements in the Turkish capital market, since substantial increase in the number of free float shares is expected to result in enhanced trading liquidity and marketability. However, empirical results in the study do not provide any support for the enhanced liquidity effect and show no significant change in liquidity and market depth of stocks.