An empirical study on seasoned equity choice between qualified institutional placements and rights issues in India

Abstract

This paper empirically examines the factors that determine the choice between qualified institutional placements (QIPs) and Rights issues for raising seasoned equity capital by selected BSE listed firms in India from 8th May 2006 to 31st December 2010. By conducting multivariate logit regression analysis, the study finds that firms placing equity privately on QIP basis tend to be bigger in size, more costly in terms of direct issue expenses and have considerable growth opportunities than Rights offering firms. In contrast to the extant studies, the study finds conclusive evidence that QIP firms have higher cash flows, more earnings from operations, and greater institutional investors’ following vis-a-vis firms going for Rights issues. The findings suggest that QIPs, as a method for issuing subsequent equity, find favor with seasoned players in the market.