Registered direct offerings and confidentially marketed public offerings

Abstract

Both registered direct offerings (RDOs) and confidentially marketed public offerings (CMPOs) sell registered shares and permit confidential marketing before the offering. CMPOs have gained popularity relative to RDOs from 2008 to 2021. We identify two key factors influencing the choice between RDOs and CMPOs. First, issuers with low risk and low information asymmetry prefer CMPOs. Second, CMPOs tend to involve more investment banks and reach more institutional investors than RDOs. There is also some evidence that a regulation requiring shareholder approval for a large private offering might discourage the use of RDOs. On average, both types of equity offerings are followed by low long-run abnormal returns, but participating investors can potentially earn positive abnormal returns by selling their offered shares early. CMPOs are not followed by lower average returns than RDOs, suggesting that the popularity of CMPOs is not because they allow issuers to more successfully time the market than RDOs. Finally, we provide some evidence that post-offer stock performance is related to investor type.