Louisiana State University LSU Digital Commons LSU Historical Dissertations and Theses Graduate School 2000 Seasoned Equity Issuance by Closed -End Funds. William Henry Brigham Jr Louisiana State University and Agricultural & Mechanical College Follow this and additional works at: https://digitalcommons.lsu.edu/gradschool_disstheses Recommended Citation Brigham, William Henry Jr, "Seasoned Equity Issuance by Closed -End Funds." (2000). LSU Historical Dissertations and Theses. 7143. https://digitalcommons.lsu.edu/gradschool_disstheses/7143 This Dissertation is brought to you for free and open access by the Graduate School at LSU Digital Commons. It has been accepted for inclusion in LSU Historical Dissertations and Theses by an authorized administrator of LSU Digital Commons. For more information, please contact [email protected]. INFORMATION TO USERS This manuscript has been reproduced from the microfilm master. UMI films the text directly from the original or copy submitted. Thus, some thesis and dissertation copies are in typewriter face, while others may be from any type of computer printer. The quality of this reproduction is dependent upon the quality of the copy submitted. Broken or indistinct print, colored or poor quality illustrations and photographs, print bieedthrough, substandard margins, and improper alignment can adversely affect reproduction. In the unlikely event that the author did not send UMI a complete manuscript and there are missing pages, these will be noted. Also, if unauthorized copyright material had to be removed, a note will indicate the deletion. Oversize materials (e.g., maps, drawings, charts) are reproduced by sectioning the original, beginning at the upper left-hand comer and continuing from left to right in equal sections with small overlaps. Photographs included in the original manuscript have been reproduced xerographically in this copy. Higher quality 6* x 9” black and white photographic prints are available tar any photographs or illustrations appearing in this copy for an additional charge. Contact UMI directly to order. Bell & Howell Information and Learning 300 North Zeeb Road, Ann Arbor, Ml 48106-1346 USA 800-521-0600 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. SEASONED EQUITY ISSUANCE BY CLOSED-END FUNDS A Dissertation Submitted to the Graduate Faculty of the Louisiana State University and Agricultural and Mechanical College in partial fulfillment of the requirements for the degree of Doctor of Philosophy in The Interdepartmental Program in Business Administration by William Henry Brigham, Jr. B.S., Vanderbilt University, 1981 M.S., Louisiana State University, 1995 May, 2000 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. UMI Number 9963938 ___ ® UMI UMI Microform 9963938 Copyright 2000 by Bell & Howell Information and Learning Company. All rights reserved. This microform edition is protected against unauthorized copying under Title 17, United States Code. Bell & Howell Information and Learning Company 300 North Zeeb Road P.O. Box 1346 Ann Arbor, Ml 48106-1346 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. ACKNOWLEDGMENTS I am grateful to my chairman, Dr. Ji-Chai Lin, for his valuable advice, his unstinting patience, and his steadfast encouragement. There was never a time I left his office that I didn’t feel a little wiser and a little more optimistic. Also on my committee, I am indebted to Dr. Myron Slovin for his crucial insight and suggestions. He always asked the right questions, and helped me see how the pieces fit together. I would like to thank the members of my dissertation committee, Drs. Gary Sanger, Faik Koray, and Lynn Lamotte. From this day forward, I will always be thankful for the encouragement provided by Dr. John Broussard, a true friend. My first and greatest debt is owed to my wife, Jane Mostellar Brigham. It is to her that I dedicate this work. ii Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. TABLE OF CONTENTS ACKNOWLEDGEMENTS ................................................................................................. ii LIST OF TABLES................................................................................................................ iv ABSTRACT .......................................................................................................................... vi CHAPTER 1. AN OVERVIEW......................................................................................... I 1.1 Introduction ................................................................................................................1 1.2 Structure and Trading Patterns of Closed-End F u n d s .............................................3 1.3 Legal and Regulatory Aspects of Closed-End Funds...............................................5 1.4 Summary......................................................................................................................7 CHAPTER 2. PUBLIC SECURITIES ISSUANCE...........................................................8 2.1 General........................................................................................................................8 2.2 Price Pressure Phenom ena .........................................................................................11 2.3 Rights Offers ..............................................................................................................15 2.4 Ownership Structure and Concentration ................................................................. 21 CHAPTER 3. IMPLICATIONS OF SECURITIES ISSUANCE BY CLOSED-END FUNDS.................................................................................... 23 3.1 Implications for Pre-announcement and Announcement Period Returns _______ 23 3.2 Implications for Offering Period Returns ................................................................. 28 3.3 Implications for Ownership Concentration ............................................................. 33 CHAPTER 4. SAMPLE DEVELOPMENT AND STATISTICS 4.1 Sample Development .................................................................................................35 4.2 Descriptive Statistics .................................................................................................36 CHAPTER 5. EMPIRICAL ANALYSIS ...........................................................42 5.1 Pre-issuance Price Runup .......................................................................................... 42 5.2 Event Study for Period Around Issuance ................................................................. 44 5.3 Announcement Period Returns .................................................................................. 50 5.4 Offering Period Returns .............................................................................................51 5.5 Changes in Ownership Concentration and Trading Volume ................................... 61 5.6 Evidence on Funds’ Choice Between Rights and Firm Commitment Offerings.. 64 CHAPTER 6. CONCLUSION.......................................................................................... 67 REFERENCES......................................................................................................................70 VITA .................................................................................................................................... 74 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. LIST OF TABLES 1. Time Distribution of Equity Offerings.............................................................. 37 2. Market Capitalization Characteristics of Sample Firms on Announcement D a y.....................................................................................................................38 3. Rights issues: subscription price relative discounts ....................................... 39 4. Relative size of rights issues ..............................................................................39 5. Unadjusted mean cumulative returns for the year preceding closed-end fund equity issue announcement...................................................................... 43 6. Unadjusted mean cumulative returns for the first 100 trading days after closed-end fund equity issue announcement................................................... 45 7. Percent average abnormal stock returns for 7 event periods around issue announcements ......................................................................................... 47 8. Percent average abnormal stock returns at announcement of firm commitmentofferings................... ................................................................. 49 9. Unadjusted cumulative returns during offering periods, for transferable vs. Nontransferable subsamples ...................................................................... 53 10. OLS estimates in a cross-sectional regresion of raw offering period cumulative returns against relative issue size and a dummy for rights transferability ....................................................................................................54 11. OLS estimates in cross-sectional regressions of raw offer period cumulative returns against the