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Agency Conflicts in Closed-End Funds: The Case of Rights Offerings

Published online by Cambridge University Press:  06 April 2009

Ajay Khorana ,
Sunil Wahal  and
Marc Zenner
Ajay Khorana
Affiliation:
ajay.khorana@mgt.gatech.edu, Georgia Institute of Technology, DuPree College of Management, Atlanta, GA 30332
Sunil Wahal
Affiliation:
sunil_wahal@bus.emory.edu, Emory University, Goizueta Business School, 1300 Clifton Road, Atlanta, GA 30322
Marc Zenner
Affiliation:
zenner@unc.edu, University of North Carolina, Kenan Flagler Business School, McColl Building CB 3490, Chapel Hill, NC 27599.
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Abstract

We study 120 rights offerings by closed-end funds from 1988–1998. On average, rights offerings are announced when funds trade at a premium. This premium turns into a discount over the course of the offering. The premium decline is more severe when increases in the investment advisor's compensation are larger and when the fund uses affiliated brokerdealers to solicit subscriptions to the offer. A clinical analysis shows that rights offerings allow investment advisors to sidestep fee rebates and increase pecuniary benefits to affiliated entities. Overall, our results suggest the presence of significant conflicts of interest in rights offerings by closed-end funds.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 37 , Issue 2 , June 2002 , pp. 177 - 200
Copyright
Copyright © School of Business Administration, University of Washington 2002

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