Equity Issuance Methods and Dilution

Equity Issuance Methods and Dilution

Mike Burkart, Hongda Zhong

Series number :

Serial Number: 

Date posted :

November 19 2019

Last revised :

April 02 2021
SSRN Share


  • Rights offerings • 
  • Public offerings • 
  • asymmetric information • 
  • Winner Curse

We analyze rights and public offerings when informed shareholders strategically choose to subscribe. Absent wealth constraints, rights offerings achieve the full information outcome and dominate public offerings. When some shareholders are wealth constrained, rights offerings lead to more dilution of their stakes and lower payoffs, despite the income from selling these rights.

In both rights and public offerings, there is a trade-off between investment efficiency and wealth transfers among shareholders. When firms can choose the flotation method, either all firms choose the same offer method or high and low types opt for rights offerings while intermediate types select public offerings.

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Real name:
Fellow, Research Member
London School of Economics and Political Science
Real name:
Hongda Zhong