Does company warrant create value for Malaysian right issue?
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Date
2014-06
Authors
Chong, Chuan Foong
Journal Title
Journal ISSN
Volume Title
Publisher
Universiti Sains Malaysia
Abstract
Right issue is an important tool for listed firms in Bursa Malaysia to raise funding for its investment projects. This is one of the advantages of being a listed entity. Rather than incurring bank debt, it could access the capital market and thereby, avoiding costly interest payment to banking institutions.
There have been past studies on the subject of right issue in Malaysia and the effect of warrant on firm equity performance. However, none has looked into the effect of attaching warrant to right issue in Malaysia. Different from previous studies that focus on Malaysian right issue announcement period abnormal return alone, the novelty of this study looks to establish a link between the return, firm and market characteristics.
The objective of this study to examine if attaching company warrant to a right issue will incur positive effect on the firm’s share price. If the warrant is beneficial to the firm’s right issue, firm equity should incur positive abnormal return post announcement date. This thesis is to investigate whether the hypotheses are valid for listed firms in Malaysia, a fast emerging market that consists of a large pool of growing company with a penchant demand for cheaper funding source. The sample consists of 121 stocks listed on the Main Market of Bursa Malaysia from January 2006 to December 2012.
The announcement period abnormal return is measured by the standard event study methodology while the determinants of the right issue performance is measured by self selection bias adjusted OLS of Heckman(1976). The determinants of the abnormal return are extracted from empirical literature on warrant studies and grounded theoretically. This thesis controls for firm size, firm growth, firm risk or uncertainty, under writer reputation and market conditions.
The results show that right issue with warrant incurs better return. The study also reports that right issue with warrant is related negatively to firm size, under writer reputation and market conditions while related positively to firm growth. Thus, the study concludes that investors are generally well received to right issue with warrant in the Malaysian market and this study could contribute towards firm capital management exercise decisions in Bursa Malaysia.
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Keywords
Right Issue , Company Warrant