The Informational Content of Equity Offerings with Rights and Firm Value

The aim of this study is to test whether the relation between the informational content of equity offering announcements and their impact on the firm value depends on the motive of the offering. The use of the proceeds allows differentiating the equity issues according to the theories that explain capital structure choices. From a sample of 172 equity offerings with rights conducted by French industrial firms between 1984 and 2000, we find that the negative stock price reaction to the announcement (-1.9 %) is restricted to a sample of 95 issuers using the proceeds to finance a specific investment project. The remaining 77 operations exhibit no abnormal announcement valuation effect. Their motive to raise equity is to improve the capital structure and it is not directly related to a change in the assets structure. Furthermore, the announcement valuation effect of issuers financing a new investment is explained by information asymmetry theories, while the stock market reaction to other offerings announcements is related to optimal capital structure theories. In terms of informational content, the characteristics released at the announcement (gross proceeds, insurance and existing blockholders’ precommitment) represent the entire managers’ private information thatinvestors have not anticipated at the time of the issue.