Date of Award

2000

Document Type

Dissertation

Degree Name

Doctor of Philosophy (PhD)

Department

Finance (Business Administration)

First Advisor

Ji-Chai Lin

Abstract

This dissertation examines in detail the previously unexamined phenomenon of seasoned equity issuance by closed-end funds. Evidence presented here indicates that closed-end funds issue equity at a much higher occurrence rate than is the case for regular, operating firms in the US. Furthermore, these funds overwhelmingly use the rights offer method of equity flotation, which, outside the closed-end universe, has rarely been used in the US in recent years. The evidence produced by this study indicates that, in contrast to industrial firms, the shares of closed-end funds show no significant reaction to announcements of either rights offerings or firm commitment offerings. This is consistent with adverse selection models of securities issuance. However, contrary to these models, closed-end funds also display strong price runups prior to issue, in both absolute and relative (relative to the market) terms, as evidenced in part by significant positive movements in fund discounts in the year prior to issue. Closed-end fund rights offerings frequently involve nontransferable rights, an important feature which is exceedingly rare outside the closed-end universe. This nontransferability feature, when matched up with otherwise similar but transferable rights offerings, affords the opportunity to test for temporary price pressure in these securities events. Although the significant negative returns found during the offering periods are consistent with temporary price pressure, the very weak price rebound observed after the completion of the offers is more supportive of a permanent price pressure effect on the shares of closed-end funds that issue additional shares in equity offerings.

ISBN

9780599681934

Pages

75

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