Shareholder nonparticipation in valuable rights offerings: New findings for an old puzzle

Shareholder participation in valuable domestic rights offerings averages only 64%, which is considerably lower than previously asserted. This causes wealth transfers from nonparticipating to participating shareholders that average 7% of the offering. Wealth transfers are larger in nontransferable and bigger offerings. The stock market reacts more negatively to larger wealth transfers. Offerings with lower shareholder participation also fall short in raising publicly stated capital goals. Rights offerings are far more common in countries with institutional practices that limit nonparticipating shareholders’ wealth losses. These findings suggest that agency conflicts influence the use of rights offers.