The Effect of Subscription Discounted Price Moderated by CSR Investment on Right Issue Performance

Abstract

Many banking firms executed right issues in order to expand their business or meet the minimum core capital requirements. Among those, Bank Rakyat Indonesia (BRI) recorded the largest rights issue in Southeast Asia Region. With a discount of 2.5% from their average market price, this right issue saw an oversubscription of 1.35%. According to prior research, financial managers have long recognized that subscription discount prices (DISC) affect the performance of a right issue. Rational stockholders will not subscribe if the subscription price is set above the stock price. However, in BRI’s case, their involvement and concern for community development and sustainability may be another factor affecting the success of a rights issue. This argument may be true since previous research has shown that investors are increasingly considering non-financial information, of which corporate social responsibility (CSR) is a key component. Reflecting on this, the author was intrigued in testing out the moderating effect of a company engagement in CSR on the relationship between DISC and the performance of a right issue, to know whether increased CSR investment increases the likelihood of a successful right issue. This study takes a quantitative approach, collecting secondary data with a purposive sampling. The total sample of 52 bank rights issues in Indonesia was analysed using a moderating binary logistic regression model. The findings suggest that DISC positively affects the success of right offerings while firm’s age affect negatively. Also, DISC and profitability significantly positively affect the abnormal returns. However, CSR Investment as the moderator did not have significant effect on the right issue performance. Therefore, financial managers should set the subscription price below the market price, especially if the firm's stock has a history of major volatility.