The long-run performance of firms making multiple rights issues

This study examines the long run operating and stock market performance of firms offering multiple rights issues in the UK and differentiates between the one-time issuers and multiple issuers. Firms may repeatedly raise equity if they need funds for value enhancing projects and had shown good performance following a prior equity issue as compared to the firms that had not performed well following a prior equity issue. The study estimates the long run returns using BHAR, CAR, Fama-French three and four factor returns and operating performance using EBITDA/TA, ROA, ROS measures. The results show, on average, that firms making multiple rights issues do not experience significant negative abnormal operating or stock return performance following the third or subsequent issues whereas the one-timers do experience statistically negative and significant abnormal performance following their single rights issue. These results show that the firms making multiple rights issues are of better quality and investors could avoid loses by investing in rights issues of the firms that had made an equity issue in the past. The results also imply that the studies examining the long run post-event performance should control the incidence of multiplicity of that event happening in the past.