Abstract:
This study analyzed the information content at the announcements of the right issue of
the companies listed on the Sri Lankan Stock Market (SLSM) and tested the
information efficiency by using event study methodology. The sample consisted of 38
listed companies, which made 40 public announcements of the right issues on the
SLSM from 2005-2013. The Mean Adjusted Model, the Market Adjusted Model, and
the Market Model along with proxy of the SLSM All Share Price Index (ASPI) were
used in this study in generating abnormal returns in and around right issue
announcements. Specifically, the Market model was used by incorporating volatility
clustering effect and information asymmetric effects to get a strong result. Further,
Time Series Models such as AR, MA, ARMA, GARCH, TARCH and EGARCH in
relation to the stylized facts of each company returns within the sample specially to
minimize the use of bias of the SLSM All Share Price Index as a proxy in generating
abnormal returns. Overall results of the market response to right issue announcements
based on each model show that the market reacts negatively to information
subsequent to the right issue announcements in the SLSM. In addition, the analysis
shows that there are delayed reactions to information subsequent to a public
announcement of this event. It confirms that the Sri Lankan Stock Market is
inconsistent with information efficiency subsequent to the information contained in
the announcement of right issue announcements. These findings are important to all
parties interested in the Share Market. Especially, it is more important to the
investors, the managers of the companies and the Stock Exchange regulatory agencies
in their decision-making process.
