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Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA AFM Exams › Rights issue – signaling of directors?
I read the following somewhere: “The success of rights issue will depend on the willingness and ability of the director-shareholders to subscribe.”
Why is this? Is this because of asymmetry of information (directors know more than outside shareholders) and signaling or some other reasons?
(The context was that director-shareholders might not have the funds to take part of the rights issue and that would cast doubt on other shareholders taking up the right issue.)
Whether or not the directors know more, if they are not subscribing for any reason then other shareholders may assume that there is a problem that they do not know about and therefore they may be less willing to subscribe also.