The performance of firms making multiple rights issues in the UK

This study examines the market reaction to rights issues announcements in the UK in addition to looking at the order in which the firms make multiple issues. In doing so, it looks at 569 rights issues made by 243 industrial and financial firms over the period 1988-98. The results suggest that the market responds negatively to a rights issues announced earlier by a typical firm and this negative reaction diminishes and gradually becomes insignificant at or after the third rights issue. The gradual improvement in the availability of information (and hence lower adverse selection costs) surrounding later issues as compared to the earlier ones by multiple issuers is the main reason behind the favourable market response to later issues. Neither the post-issue firm performance after a prior rights issue nor the anticipated firm performance after a current issue is found to be related to this result. These results are more consistent for the industrial subsample as compared to those for the financial subsample, which is relatively small.