Arbitrage opportunities and event impacts on Spanish rights issues

ABSTRACT

In equity offerings in which pre-emptive subscription rights are issued, there are two ways of acquiring the company’s shares: either by buying them directly on the market, or by subscribing to the new shares using the subscription rights. This could lead to the existence of arbitrage opportunities. In addition, the announcement of these processes incorporates very relevant information to the market, which could generate abnormal returns for the shares. This paper analyses both hypotheses simultaneously on the same sample and concludes that there are indeed arbitrage opportunities and also abnormal returns can be detected. Furthermore, it is also concluded that these effects are especially significant in companies with low liquidity or for which short positions in the market are not available.

KEYWORDS:

• Rights offering
• abnormal returns
• arbitrage
• Spanish stock market

JEL CLASSIFICATION:

• G140
• G280

Acknowledgement

This work was supported by the Valencian Government and the European Social Fund (grant number ACIF/2020/109), and by the Spanish Ministry of Science and Innovation (Grant PGC2018-093645-B-I00 funded by MCIN/AEI/10.13039/501100011033 and by “ERDF A way of making Europe”).

Disclosure statement

No potential conflict of interest was reported by the author(s).

Supplementary material

Supplemental data for this article can be accessed online at https://doi.org/10.1080/13504851.2022.2137293

Notes

1 All the methodology described here is detailed in greater depth in the Appendix V.2 from the Supplementary Document, together with the Figures and Tables cited throughout the article, in the Appendix V.1.

² In October 2020, the MAB was renamed BME MTF Equity. Spanish small companies have been listed since then in the so-called BME Growth segment of BME MTF Equity. Nevertheless, we have kept the original name as it was the one in force during the period under analysis.

³ Since data for these factors are not available for Spain, we employ series of European companies considering the integration of Spanish and European regulation and markets, and because Spanish companies are included in these factors.

⁴ Being the IBEX-35, or the IBEX SmallCap for MAB companies. The estimation period starts at $\left(t-210\right)$ and ends at $\left(t-30\right)$.

Additional information

Funding

The work was supported by the Generalitat Valenciana and the European Social Fund [ACIF/2020/109];]; and the Spanish Ministry of Science and Innovation [PGC2018-093645-B-I00].