Research On Rationing Shares And Seasoned Equity Offering

Listed companies refinancing by Rationing Shares(RS) and Seasoned Equity Offering (SEO) is widespread in the securities markets of China. This is useful to the development of listed companies. According to the variation of the relative weight of RS and SEO, Refinancing can be divided into three steps, the primary stage, the formed stage and dualization stage.Only the qualified listed companies can ration shares, while unqualified those will endeavour to control Rate of Equity(ROE) to ration shares by the reshuffling of assets, related trades and dividend distribution strategy. Then, Why do listed companies make great efforts to ration shares? To answer that, it is important to conduct a cost-revenue analysis. Costs of RS consist of the direction cost and the indirection cost. The direct cost refers to dividend and underwriting fee. The indirect cost is agent cost caused by RS. Compared with debt financing, the direct cost of RS is relatively low. The analysis of revenue is done by appling to ROE. The revenue, although fairly low, is still higher than its costs, this explains why listed companies have intense motivation to ration shares. Because individual stockholders must ration shares, While big stockholders always give up rationing shares, the rights and interests of the former will be occupied by the later. Big stockholders will hurt small stockholders by rationing shares through using inferior-quality and high-price assets. Listed companies emphasis on RS, but not on how to use funds, so the rights and interests of stockholders can not be realized.SEO by qualified listed companies influences the rights and interests of new stockholders, old stockholders and non-circuiting stockholders.The effect is related to the changes of their stock values. Stock values of old stockholders and non-circuiting stockholders will decrease, while that of new stockholders will increase, the gain equils to the loss. It means that the three parters have played a zero-sum game. SEO can also affect share price as well as share index, it is to say, SEO will get down share price and share index.Analysis on comparing RS with SEO is done by means of pricing patterns, biding bodies, amounts of issue and risk to underwriting, etc.On the basis of over analysis, we present some practical measures to make better the RS and SEO: to improve financial parameter which is necessary for the qualification of RS, refrain non-circuiting stockholders to improperly take part in rationing shares and give up rationig shares, set standards to the policy of dividend distribution, establish the transaction market of rights of rationing shares. To balance rights and interests of participatant in the SEO, shares should be offered by little discount, introduce option of extra rationing, and open special deposit account for funds.