Read the section in Chapter 15 in the Brealey and Myers textbook concerning Rights Issues. The rights issue is an alternative approach used by management to obtain equity financing. In general, you should note the following about rights issues:

Setting a lower subscription price makes the deal more likely to get done

The deal not getting done will reflect badly on management

It is less likely that underpriced firms will have a significant price drop (which results in the deal not getting done).

Given this information and what you've learned in the course, give a qualitative explanation for the following evidence:

Firms who announce cash offers suffer a decrease in stock price.

Firms who announce rights issues enjoy a stock price increase.

For firms who offer rights issues, higher subscription prices lead to higher stock prices.