Are the Discounts in Seasoned Equity Offers Due to Inelastic Demand?

Citation

Armitage S, Dionysiou D & Gonzalez A (2014) Are the Discounts in Seasoned Equity Offers Due to Inelastic Demand?. Journal of Business Finance and Accounting, 41 (5-6), pp. 743-772. https://doi.org/10.1111/jbfa.12074

Abstract
This paper investigates the large and diverse discounts in UK open offers and placings. Large discounts are a substantial cost to shareholders who do not buy new shares. The existing literature mainly examines US firm-commitment offers and private placements. The institutional setting differs in the UK, in ways that make the theory of inelastic demand for shares more important as an explanation for discounts than in the US. The paper finds that inelastic demand, or illiquidity of the issuer's shares, and financial distress, are key determinants of the discount. We expect these results to apply to other stock markets.

Keywords
seasoned equity offer; discount; inelastic demand; open offer; placing

Journal
Journal of Business Finance and Accounting: Volume 41, Issue 5-6