Abstract
Studies of Korean rights issues find large positive abnormal returns for several months around rights issue announcements, in contrast to the negative abnormal returns generally documented for seasoned equity issue announcements in the U.S. We investigate this curious phenomenon by testing a large sample of Korean rights issues over a 15-year period and find a significant positive abnormal return only in the announcement month; this abnormal return is smaller than those reported by earlier studies. Our results also indicate higher abnormal returns for firms with greater reduction in leverage and for issues which are larger and offered at smaller discounts from market price. These results are inconsistent with the price-pressure and wealth-redistribution hypotheses as well as with different versions of the signalling hypothesis which predict negative market reactions to seasoned equity issues.
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