Equity Issuance, Distress, and Agency Problems: The 20% Rule for Privately Issued Equity
Year: 2013
Type: preprint
Abstract: Stock exchanges require shareholder approval for discounted placements that make up more than 20% of existing shares. This study shows discontinuity among placement distribution around the 20% threshold, which suggests that managers tend to avoid seeking approval by keeping the placement fraction just below 20%. Empirical results show that placements below 20% have negative announcement returns while …rms that seek approval do not. Moreover, managers seem to avoid seeking shareholder approval not because the approval process is too costly, but because the placements are not in the best interests of shareholders. Overall, my …ndings suggest agency problems in private placements.
Source: SSRN Electronic Journal
Author: James Park
Institution: Korea University
Language: English
Subfield: Finance
Domain: Social Sciences
Open Access status: green
OpenAlex ID: W1517922298