Journal article

The Pricing of Underwriting Risk in Relation to Australian Rights Issues

JC Handley

Australian Journal of Management | Published : 1995


The majority of rights issues undertaken by companies listed on the Australian Stock Exchange are underwritten whereby the underwriter, for a fixed fee, assumes the risk of a shortfall in subscriptions for the new shares on offer. This paper examines the pricing of underwriting risk within an option pricing framework. Using a sample of sixty rights issues of ordinary shares undertaken during the three year period ending 30 June, 1993, the risk of a shortfall that is sold by the issuer to the underwriter is found to be significantly overpriced by 0.60% of the offer price, representing 49% of the underwriting fee, on average. These excess returns to underwriting are found to be unrelated to th..

View full abstract

University of Melbourne Researchers

Citation metrics