Abstract:
Employing the event study methodology, this research probes the response of share prices to
announcements of rights issues and debenture issues within the Colombo Stock Exchange. The
market model, a quintessential tool for estimating abnormal returns, was harnessed to scrutinize
samples encompassing rights issue announcements (n=85) and debenture issue announcements
(n=106). These events transpired within the period spanning 2012 to 2019, providing a context
post-Global Financial Crisis and pre-COVID-19 pandemic. The findings evince a notable
negative reaction of share prices concurrent with the disclosure of rights issuance on the
announcement day. Conversely, a non-significant positive reaction was observed for share prices
on the debenture issue announcement date. The examination of the selected sectors' share price
responses to both rights issue announcements and debenture issue announcements yielded mixed
outcomes. Additionally, the results unveil a discrepancy with the semi-strong form of the market
efficiency hypothesis, indicating the Sri Lankan Stock market does not adhere strictly to this
theoretical proposition. Consequently, this study furnishes crucial insights into the dynamics of
share price reactions in frontier markets like Sri Lanka, thereby contributing to the broader
discourse on market efficiency
