The evidence in this note indicates that the average stock market reaction
to news of ordinary equity issues by quoted companies may depend on the sha
re issue method employed. Using a sample of announcements made in the UK be
tween 1989 and 1991 we find that the market response is significantly negat
ive when the disclosure relates to a rights issue, but that there are no si
gnificant share price changes when announcements about equity placings and
open offers take place. This result appears to be inconsistent with the the
oretical analysis contained in Myers and Majluf (Journal of Financial Econo
mics, 13, 1984).