Market Timing and Asymmetric Information: How do Rights Issues and Private Placements Attract Investors to Overvalued Stocks?

Abstract

Manuscript type: Research paper
Research aims: This study examines the background of selecting the
equity offering mechanism between rights issues and private placements
when facing asymmetric information and overvalued prices.
Design/Methodology/Approach: This research employs the concept
of information asymmetry and focuses on analysing market timing
data about stock offering transactions in Indonesia from 2000 to 2020.
This study uses regression analysis to examine the correlation between
information asymmetry and trade volume. Abnormal trade volume before
various offerings is subjected to regression analysis using generally used
proxies for information asymmetry.
Research findings: The conclusions of our research indicate that
companies that issue more shares than the overpriced stock tend to exhibit
a more excellent abnormal return value in the context of rights issues.
The sales volume indicates the company’s prospects derived from private
information obtained during the offering Theoretical contribution/Originality: There is a shortage of existing
literature about research that specifically investigates the identification
of SEO techniques that elicit negative market responses. Consequently,
this study explores the connection between the underlying motivations
driving the selection of stock offering mechanisms.
Practitioner/Policy implication: The distribution of profits in the
transaction indicates the company’s future policies. Before investing,
investors can acquire pertinent information on the company’s current
state, strategic goals, and prospects.
Research limitation: The present analysis has not considered the factors
of internal ownership or insider trading. These factors might serve as a
foundation for investigating the underlying incentives for issuing shares
with more precise market timing considerations.