Price reaction to rights issue announcements of family firms

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This study examines the effect of family control on the price reaction to rights issue announcements of publicly listed firms in Indonesia during the period of 2005–2018. The study uses agency theory, which discusses the conflict of interest between controlling/majority and non-controlling/minority shareholders. The results show that the price reaction to the right issue announcements for publicly listed firms in Indonesia is statistically significantly negative. The mean of cumulative abnormal returns (CAR) falls between –1.40% (for the Day 0 window period) and –3,43% (for the –5 to +5 window period). Further examination indicates that family control is associated with a more negative price reaction to these rights issue announcements. Specifically, for rights issue announcements of family firms, the mean cumulative abnormal returns (CAR) fall between –1,98% at announcement day (Day 0) and –5,23% for the event window period (–5 to +5). Meanwhile, for rights issue announcements of non-family firms, the current study found statistically insignificant price reactions to rights issue announcements for all the event window periods. These findings suggest that investors perceive higher agency problems among family firms where the family controlling shareholders tend to misuse and tunnel the rights issue funds for their own private benefit.

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    • Table 1. Number of rights issues in Indonesia
    • Table 2. Cumulative abnormal returns around rights issue announcements: All firms
    • Table 3. Cumulative abnormal returns around rights issue announcements: Family firms
    • Table 4. Cumulative abnormal returns around rights issue announcements: Non-family firms
    • Conceptualization
      Lukas Setia-Atmaja
    • Data curation
      Lukas Setia-Atmaja
    • Formal Analysis
      Lukas Setia-Atmaja, Henry Suthiono
    • Methodology
      Lukas Setia-Atmaja, Henry Suthiono
    • Supervision
      Lukas Setia-Atmaja
    • Validation
      Lukas Setia-Atmaja
    • Writing – original draft
      Lukas Setia-Atmaja, Henry Suthiono
    • Writing – review & editing
      Lukas Setia-Atmaja
    • Project administration
      Henry Suthiono
    • Visualization
      Henry Suthiono
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Investment Management and Financial Innovations