Advocacy of Minority Shareholders on Shares Rights Issue of Malawian Capital Market

Abstract

Share rights issue is one of the viable means by which public limited companies can raise additional cash at relatively low cost to steer growth or sustainably manage their debts. Minority shareholders can effectively increase equity stake in the situations where they can lobby majority shareholders to abstain in any rights issue to enable minority shareholders exercise preemption rights and thus increase shareholding. This might of course be easy where government is the major shareholder. While minority shareholders might be vying for more equity through rights issue, the process itself might not bring long-term benefits as this depends on the purpose for the rights issue which is key for future long term prospects and the ratio of rights issue to existing shares affect the ability of the market to raise enough funds which might force underwriters to have more remnant shares. The results of this study have shown that Malawi’s capital market has experienced only four rights issue between 1996 and 2017 of which two were executed by one firm. The purposes for rights issue did not appear to improve long-term growth aspect but the overall assumption is that rights issue had a positive impact on Z-Score Model which can improve image and going concern of public limited companies.