Abstract

This study uses daily prices and intraday trade and quote data to examine the market reaction to announcements of 95 rights offerings of Canadian firms listed on the TSE over the period 1987-1994. In a rights offering, existing shareholders are offered rights entitling them to buy new shares usually at a discount from the current market price. Consistent with previous research, we identify significant mean abnormal returns during the two-day event period (0, +1). Cross-sectional regression results support the information release, and possibly the price pressure hypotheses. Trading frequency, volume, value and conditional variance decrease significantly on the event day relative to the pre-event period and return to normal levels during the post-event period. The relative bid/ask spread decreases on the event day relative to the pre-event period. No significant permanent changes occur in all trade indicators from the pre- to post-event periods. Trade direction for the stocks does not change significantly between any two periods. Trades for the rights issued by the sample firms are more seller-initiated during their 21-day trade period.