A rights offering

Question

A rights offering

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A rights offering gives the firm a built-in market for new securities because it offers existing shareholders the right to purchase additional shares of stock at a discount, thus increasing demand for the newly issued securities. This can be a cheaper way of raising capital compared to offering shares to the public or private placement, as it saves on underwriting or brokerage fees. Additionally, the cost is generally lower and the distribution process is simpler than in other forms of new equity issuance. However, it may lead to higher distribution costs due to the need to prepare prospectuses and advertising as well as administrative costs associated with the offering. While it may increase the shareholder's total valuation, it is not guaranteed and depends on the performance of the company.

A Rights Offering