Alternative flotation methods, adverse selection, and ownership structure:evidence from seasoned equity issuance in the UK

We examine valuation effects of announcements of seasoned equity issuance a nd assess the impact of the choice of flotation method in the U.K. Rights o fferings are predominant, but in 1986, British firms gained the flexibility to conduct placings, which are comparable to U.S, firm commitment offering s. A placing is a fixed-price bought deal that increases ownership dispersi on. Placings generate significantly positive share price effects, whereas r ights offerings have large negative valuation effects that become more adve rse after 1985. We conclude that the option to conduct placings enhances th e ability of firms to signal their quality and to use a seasoned equity off ering to reduce ownership concentration. (C) 2000 Elsevier Science S.A. All rights reserved. JEL classification: G24; G32; G15.