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The Relationship Between the Rights Issue Terms and Post-Issue Stock Price Development in The Short, Medium and Long Term

Grigoluns, Jaroslavs LU and Ingvarson, Måns LU (2024) NEKN02 20241
Department of Economics
Abstract
This thesis investigates the relationship between the terms of rights issues and the subsequent
stock price development in the short, medium, and long term within the Nordic markets. Focusing
on rights issues conducted by companies in Sweden, Norway, Denmark, and Finland from 2014 to
2024, the study employs an event study methodology to analyze market reactions. Key variables
examined include the shares/rights exchange ratio, renounceability, Pari Passu status, discount to
the theoretical ex-rights price (TERP), the intended use of proceeds and financial performance
factors. The findings reveal that higher shares/rights ratios are perceived negatively, leading to
lower cumulative abnormal returns (CARs) due to concerns about... (More)
This thesis investigates the relationship between the terms of rights issues and the subsequent
stock price development in the short, medium, and long term within the Nordic markets. Focusing
on rights issues conducted by companies in Sweden, Norway, Denmark, and Finland from 2014 to
2024, the study employs an event study methodology to analyze market reactions. Key variables
examined include the shares/rights exchange ratio, renounceability, Pari Passu status, discount to
the theoretical ex-rights price (TERP), the intended use of proceeds and financial performance
factors. The findings reveal that higher shares/rights ratios are perceived negatively, leading to
lower cumulative abnormal returns (CARs) due to concerns about dilution. Conversely, the
inclusion of Pari Passu clauses positively influences investor confidence by ensuring equitable
treatment of new and existing shares, enhancing both short-term and long-term CARs. The
research underscores the importance of transparent communication regarding the strategic use of
raised capital and suggests that tailoring rights issue strategies to specific market conditions and
investor behaviors can optimize outcomes. This study contributes to corporate finance literature
by providing evidence-based recommendations for designing effective rights issue strategies that
align shareholder interests with corporate goals. (Less)
Please use this url to cite or link to this publication:
author
Grigoluns, Jaroslavs LU and Ingvarson, Måns LU
supervisor
organization
course
NEKN02 20241
year
type
H1 - Master's Degree (One Year)
subject
keywords
Rights Issues, Theoretical Ex-Rights Price (TERP), Discount Pricing, Nordic Markets, Market Conditions, Shareholder Value, Market Response, Event Study, Abnormal Return.
language
English
additional info
Work conducted at the request and under the supervision of Nordea Bank Abp, Stockholm.
id
9160912
date added to LUP
2024-08-12 15:55:29
date last changed
2024-08-12 15:55:29
@misc{9160912,
  abstract     = {{This thesis investigates the relationship between the terms of rights issues and the subsequent 
stock price development in the short, medium, and long term within the Nordic markets. Focusing 
on rights issues conducted by companies in Sweden, Norway, Denmark, and Finland from 2014 to 
2024, the study employs an event study methodology to analyze market reactions. Key variables 
examined include the shares/rights exchange ratio, renounceability, Pari Passu status, discount to 
the theoretical ex-rights price (TERP), the intended use of proceeds and financial performance 
factors. The findings reveal that higher shares/rights ratios are perceived negatively, leading to 
lower cumulative abnormal returns (CARs) due to concerns about dilution. Conversely, the 
inclusion of Pari Passu clauses positively influences investor confidence by ensuring equitable 
treatment of new and existing shares, enhancing both short-term and long-term CARs. The 
research underscores the importance of transparent communication regarding the strategic use of 
raised capital and suggests that tailoring rights issue strategies to specific market conditions and 
investor behaviors can optimize outcomes. This study contributes to corporate finance literature 
by providing evidence-based recommendations for designing effective rights issue strategies that 
align shareholder interests with corporate goals.}},
  author       = {{Grigoluns, Jaroslavs and Ingvarson, Måns}},
  language     = {{eng}},
  note         = {{Student Paper}},
  title        = {{The Relationship Between the Rights Issue Terms and Post-Issue Stock Price Development in The Short, Medium and Long Term}},
  year         = {{2024}},
}