Market reaction to unsweetened and sweetened rights offerings in an emerging European stock market

Abstract

This research investigates the market reaction to both unsweetened (plain) and sweetened (with simultaneous distribution of bonus issues) rights offerings in the Istanbul Stock Exchange. Consistent with previous U.K. and U.S. evidence, although with larger magnitude, the announcement day abnormal returns for unsweetened rights offerings are negative and significant, suggesting that such issues convey unfavorable information about the future operating performance, investment opportunities, liquidity and dividend policy. In contrast, for sweetened rights offerings, the abnormal returns are positive. The empirical results do not provide evidence for the enhanced trading liquidity effect (the sweetener split effect) and for the overvaluation signaling effect. (C) 2005 Elsevier B. V. All rights reserved.