Listed Companies Rights Offering

In Chinese, participants of stock market commonly think that there are many issues in listed company's right offer behavior .They think of the right offer as gaining money by cheating. why investors have so much complaint in right offer? why investors think the right offer price too high in despite of discount? why investors regard the right offer as a bad news?In this paper I try to contemplate these issues. My basic viewpoint is that it is dysfunctional corporate governance that causes various issues in right offer, especial the equity structure. In fact present euity structure divides stockholders into two parts: block holders whose shares aren't outstanding, and minority holders whose shares are outstanding. This equity arrangement causes the intersts separations and conflicts between block holders and minority holders, and because the block holders take up controlling position, they would be inclined to violating the interests of minority holders.We make a signaling model based on the governance structure of Chinese listed companies. The model's key variable is the block holders' subscription level for right issue. And we assume there is asymmetric information between block holders and minority holders, so minority holders' decision making if subscribe the right issue or not is based on the signaling from block holders' subscription level. If block holders' subscription is higher, then minority holders take it as favor signal; otherwise as infavor signal.Then, how about the block holders' subscription level? In part two of this paper, we make statistical description of it from 1993 through 1999,Itturns outthatthe subscriptionlevel ofblockholders Is very low．Consequentlyweproposetwo assumptions for our slganling modal: Assumption one: The lower subscription level ofblock holders would convey Infavor signal about corporate value andprospect,and cause stockprlcedropondate ofannouncementZ Assumptiontwo:The above－mentlonedlnfavor signal simultaneously implies the long－run operatingperformance ofrlght company would underperform after offering,futher make the long－run stockprlce underperform． h examlnethe irst assumption,we observetheprlce effect duringthe announcementperlodofrlghtoffer．we indprlce a刃＂sts downward．Further,we arrange a multiple regresslon,and ind correlatlonbetweentheblockholders'subscrlptlonlevelandstock ICtUTll dllflfig sllllollllCCthCflt PCtlod Of fight Offef．ThiS SllPPOft thC irst assumption． h examine the second assumption,we make two empirical analyses Inpartthree and four．Inpartthree we examine the long－term operatingperformance over three years after rlghtoffer． The result Is consistent with our assumption,the long－term operating performance lsterrible． In Part four,we examine the long－run(three years)Price N 多 pCffofinsllCC sftCf fight Offef．Afid thC fCSlllt Is slSO COllslstCllt With the second assumption,the operating performance of rlgh companies Is worse thanthatofmatching companies． So the evidence Inpart·three and four supports our second 2assumption.Additional, we also examine the earnings management prior to right offering. And we find companies that conduct right offer indeed conduct earnings management ,especially in the second year prior to offering, we believe right company adjust profit u...