Rights issues continue to be a well-researched topic within the field of
corporate finance. The focus of this study was to consider the long-run impact
of rights issue on company performance both in terms of share price
performance and operating performance. The long-run perspective taken in
this study adds to the literature, which usually looks at the immediate share
price reaction to a rights issue announcement. The study also looked at
whether the intended use of capital stated in the SENS announcement had
any post-issue effect on the share price.
The study found significantly negative cumulative average abnormal returns
within the first year after the rights issue. This study confirms the expected
negative share price reaction to a rights issue announcement. The study also
found evidence that companies that use the proceeds to repay debt, invest or
for general purposes had a negative share price reaction to a rights issue
announcement. Companies that were vague about the intended purpose of
the rights issue had the largest post-issue underperformance.
The study did not find any statistically significant evidence that the rights issue
announcement had any effect on the operating performance. These findings
suggest that rights issues have more impact on a company’s share price, and
no clear impact on the operating performance of the issuing company.