Title page for ETD etd-06242012-135803

Document Type Master's Dissertation
Author Cotterell, Paul Jonathan Mark
URN etd-06242012-135803
Document Title The impact of rights issues announcements on share price performance in South Africa
Degree MBA
Department Gordon Institute of Business Science
Advisor Name Title
Prof M Ward Supervisor
  • rights issues
  • capital structure
Date 2012-03-08
Availability unrestricted
Rights issues are an area of much interest and research globally. With the last significant local study on the topic conducted in 2005, this paper updates the findings based on more recent data. This is also the first study to explore the impact that the company’s financial position has on the share price reaction to the announcement.

The study was conducted by analysing rights issue announcements occurring on the JSE between 1st January 2001 and 31st December 2010. 35 events were used in this study since they met the criteria for clean measurement. A standard event study methodology was used. Abnormal returns were measured through both the market model and control portfolio, with the Altman Z Score utilised as a measure of the issuers’ financial position. Statistical analysis was conducted throughout to confirm significance.

Average Abnormal Returns of -2.33% and -3.30% were found on the day of the announcement, depending on the model used, and Cumulative Average Abnormal Returns (CAARs) for five days post the announcement were between -5% and -6%. Of most interest, share price reactions were found to differ, with statistical significance, according to the financial position of the issuer. Companies categorised as healthy recovered from the initial decline to a CAAR of less than -1% twenty days post the announcement. In contrast companies categorised as unhealthy and in the grey zone suffered CAARs after the same period of -9.17% and -8.06% respectively. The conclusion of the study is that the well-researched share price decline on the announcement of a rights issue persists, but that this reaction is significantly worse for companies in a poor financial position, as measured by their Altman Z Score.

© 2011, University of Pretoria. All rights reserved. The copyright in this work vests in the University of Pretoria. No part of this work may be reproduced or transmitted in any form or by any means, without the prior written permission of the University of Pretoria.

Please cite as follows:

Cotterell, PJM 2011, The impact of rights issues announcements on share price performance in South Africa, MBA dissertation, University of Pretoria, Pretoria, viewed yymmdd < http://upetd.up.ac.za/thesis/available/etd-06242012-135803/ >


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