Some financial decision-makings of the firm affect the stock price, and among them, the Right Issue is one of the most interesting events in the Korean Stock Market. Thus, this study investigates the stock price behavior around the announcement day of the Right Issue.
The focus of the analysis is the issue at market price, that's because the issue at market price has rapidly increased from 1987. The methodology used in this study is the "event study", which was introduced by Fama, Fisher, Jensen, and Roll for the first time. The Right Issue data which were used in this thesis are restricted to 382 cases announced from 1984. 1 to 1988. 6.
The stock price behavior of pre-announcement day is explain with the regression analysis, and that of post-announcement day with the discriminant analysis. The values of pre-emptive rights measured by Galai's warrant pricing model, are reflected on each analysis directly or indirectly.
The results of the empirical analysis are as follows:
First, when Right Issues are announced at par value, the price pressure does not arise. Most of the results are consistent with prior researches.
Second, after Right Issues are announced at market price, the decline of CER from +2 to +6 is statistically significant. However, the stock prices advance, when the advance in the stock price index of the issuing firm's industry increases larger than that of the market.
Third, the pre-announcement price changes in accordance with the values of the pre-emptive rights.
Fourth, CER is higher under bullish market conditions than under bearish market conditions.
Fifth, the important variables which can explain the stock price reaction for the period of one week after the announcement day are DIM, DIFF, and VAR selected by the discriminant analysis.
Sixth, the reduction of discount rate from 50% to 40% causes the reduction of CER. However, investors' favor about Right Issues does not change.
