B. Espen Eckbo
() and Øyvind Norli
B. Espen Eckbo: Tuck School of Business, Dartmouth College, Postal: Tuck School of Business at Dartmouth , Hanover, NH 03755, USA
Øyvind Norli: Rotman School of Management, University of Toronto, Postal: Joseph L. Rotman School of Management, University of Toronto, 105 St. George Street, Toronto, Ontario, Canada M5S 3E6
Abstract: Extending the Myers and Majluf (1984) framework, we present a model for the choice of seasoned-equity selling mechanism. A sequential pooling equilibrium exists which implies a positive market reaction to certain flotation strategies. We examine the model implications using the market reaction to issues on the Oslo Stock Exchange using the full range of flotation methods. The average market reaction is non-negative across all methods, and significantly positive for both rights offerings and private placements, as predicted. We also show that average long-run abnormal stock returns to OSE issuers are indistinguishable from zero, supporting the market rationality assumption underpinning the flotation game.
54 pages, December 17, 2004
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