Equity issuance and share price performance on the Johannesburg Stock Exchange

Abstract

Listed companies can acquire capital through a rights issue where existing shareholders have a preference in buying additional shares at a discounted rate, in proportion to their existing holding. When implemented, share prices tend to react to the announcement and the realisation thereof. Covering the period 2005–2022, an event study was implemented to determine the effect of a rights issue and its announcement for companies listed on the Johannesburg Stock Exchange. Depicting the results in terms of the Cumulative Average Abnormal Returns (CAARs), our findings indicate that share prices typically drop below the 5th percentile after a rights issue announcement and remain low for 30 days. Once implemented, share prices tend to increase beyond the 95th percentile and remain high. The research also indicates that the relative size of the rights issue does not affect these findings. Finally, resource companies are more prone to rights issue activities when compared to non-resource companies, whilst growth (versus value) companies are more negatively influenced.