Shareholder Wealth Effects of Rights Offerings in an Emerging European Market : The Istanbul Stock Exchange

This research investigates the market reaction to both quot;unsweetenedquot; (plain) and quot;sweetenedquot; (with simultaneous distribution of bonus issues) rights offerings during the announcement and subscription periods. Three hypotheses, namely the signaling, the issue price irrelevance and the price pressure hypotheses, are tested within the unique institutional settings of the Istanbul Stock Exchange (ISE). Similar in direction to the research results in the U.S., but greater in magnitude, a negative market reaction is empirically detected on the announcement day for quot;unsweetenedquot; rights offerings. However, for quot;sweetenedquot; rights offerings, a positive market reaction is detected supporting the sweetener effect of bonus issues. Positive market reactions are also found during the subscription periods of both quot;unsweetenedquot; and quot;sweetenedquot; rights offerings. The cross-sectional analyses of the observed market reactions provide evidence supporting the three hypotheses