The Test of the Price Pressure Effects due to the Capital Raising Plans

The purpose of this study is to investigate the effect of capital gain plans on return cumulative and buy (sell) pressure on the days around assembly. In this study, capital gain means shareholders benefit from receivables financing (stock rights) and conversion of retained earnings into new shares (profit share) for fixed investment and development. According to the price pressure hypothesis, issuance of new shares leads to an increase in supply and accordingly, the stock returns and trading volume are affected. 100 companies which over the years from 2003 to 2014 have increased their capital investments three times were the focus of this study. For this purpose, panel data and stratified random sampling were used to collect and organize the sample companies` data. OLS regression and two-tailed T-test were used for data analysis. OLS regression results indicated that the rate of rise in capital has no significant negative effect on two day cumulative returns (the day before and the day after the assembly). Moreover, T test showed capital gain plans has no significant effect on the pressure to buy (sell) in the days around assembly. As a result, the price pressure hypothesis is not confirmed.

Abstract licence: CC BY-NC-ND

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