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Review of Finance Advance Access originally published online on June 28, 2008
Review of Finance 2008 12(4):701-733; doi:10.1093/rof/rfn018
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© The Author 2008. Published by Oxford University Press on behalf of the European Finance Association. All rights reserved. For Permissions, please email: journals.permissions@oxfordjournals.org

Which Investors Leave Money on the Table? Evidence from Rights Issues*

Elias Rantapuska1 and Samuli Knüpfer2

1 Helsinki School of Economics
2 Helsinki School of Economics

This study documents patterns of investor behavior around Finnish rights issues. We find that shareholders of issuing companies lost at least {euro}9.9 million in aggregate from 1995 to 2002 by exercising rights too early, selling rights in the open market below their intrinsic value, or leaving rights unexercised. At the investor level, the losses are modest. For example, the median household investor suffered a loss of {euro}135 from not exercising or selling the rights. Investors with small portfolios, inactive trading history, those who know neither of the official languages in Finland, or who are living abroad leave money on the table the most.

JEL Classification: G32, D01

* We would like to thank Peter Bossaerts (the editor), two anonymous referees, Ari Hyytinen, Markku Kaustia, Matti Keloharju, Mikko Leppämäki, Jukka Perttunen, Kristian Rydqvist, Hersh Shefrin, Sami Torstila, Jussi Utriainen, Risto Walden, and workshop and seminar participants at the Helsinki School of Economics, Graduate School of Finance, and European Financial Management Behavioral Finance Symposium for comments and suggestions. In addition, we would like to express our gratitude to Reeta Ruija at Finnish Financial Supervision Authority, Päivi Mikkonen at OMX, representatives of sample companies, and their rights issue underwriters for their help in obtaining the prospectuses. Mikael Katajamäki provided excellent research assistance. Finally, financial support from Okobank Group Research Foundation, Finnish Foundation for Advancement of Securities Markets, Yrjö Uitto Foundation, Helsinki School of Economics Foundation, Wihuri Foundation, Graduate School of Finance, and Academy of Finland is gratefully acknowledged. An early version of this paper circulated under the name "Which Investors Are Irrational? Evidence from Rights Issues".


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