What's wrong with rights issues? Introduction A rights issue is a matter of rights to purchase new shares, which are issued pro rata to existing shareholders, Armitage (2007). Rights issues have been the dominant form of equity offerings for fundraising in the US and UK. However, there has been a shift towards other forms of share issuance. The United States has moved toward firm commitments, Eckbo and Masulis (1992). In this the subscriber guarantees the sale of the issued shares at the agreed price. The change in the United States came in the 1960s. In the UK there has been a movement towards open offers. Open offers are similar to rights issues, but investors are unable to sell the shares they purchase under the open offer to other parties. The change in the UK came much later than in the US, starting in the 1990s. The purpose of this article is to examine why this change has occurred and to find out what academics believe is wrong with rights issues. To achieve this objective, two articles on the topic will be examined. The first article to be reviewed will be Eckbo and Masulis (1992) and the second will be Armitage (2007). Once you have examined both articles, you will come to a conclusion that will compare them and conclude on their main contribution to knowledge. Eckbo and Masulis (1992) Background Eckbo and Masulis (1992) open their article by explaining the decline of rights issues and the rise of human rights. firm commitments. To demonstrate this, Eckbo and Masulis use a sample of 1,249 stock offerings between 1963 and 1981. Eckbo and Masulis highlight the puzzle presented by Smith (1977). Smith believes that rights issues have lower costs than corporate commitments. Smith also states that the rights issuer can guarantee success... middle of the paper... that selling large blocks of shares plus rights is quite expensive and means that the apparent cost benefit of the rights issue it is illusory. The cost of selling new shares plus rights has not previously been documented as a material cost in rights matters. Both documents are credible in their own right and provide answers to declining rights issues. Eckbo and Masulis (1992) is more credible for US markets and Armitage (2007) is more credible for UK markets. However, Armitage (2007) may be the most credible study as it finds that long-term abnormal returns following rights issues with pre-renounced shares are not consistently negative or significant, which would suggest that the issuers were fairly valued. This result slightly refutes the anomalous returns results of Eckbo and Masulis (1992) and the over/undervaluation theory, but the sample of Eckbo and Masulis (1992) is much larger.