Operating Performance Of China's Listed Firms Following Rights Issues: Causes And Consequences

This paper mainly investigates the changes and causes of operating performance of China's firms conducting rights issues. It is documented that, rights issuers experience a sharp, statically significant decrease in post-offering operating performance; from the pre-offering years to the post-offering year 2, the operating performance of issuing firms is higher than that of the non-issuer matched by industry, asset size, and operating performance, however, in the year 3 following the offering, the operating performance of issuing firms is lower than that of the non-issuer. In the years after the offering, the median issuer's operating performance rapidly deteriorates relative to the non-issuer. Consistent with the implication of the free cash flow hypothesis, the decline in post-offering operating performance is greater for issuing firms that have higher pre-offering free cash flow, and issuing firms with high ownership concentration that invest more in new assets perform better than issuing firms with low ownership concentration that do less.Similarly, constraint among large shareholders has positive impact on post-offering operating performance of issuing firms, but not significantly at customary levels; Nevertheless, compared to issuers controlled by state-owned shareholder, constraint among large shareholders of issuers controlled by private-owned shareholder, has significantly positive impact on post-offering operating performance. Among rights equity issuers, firms with more growth opportunities have larger post-offering performance declines. Surprisingly, firm size appears to have negative impact on the immediate post-offering performance while in the long-term it appears to have positive impact for issuers, which provides support for the theory of firm growth and partial support for the free cash flow hypothesis.