How economic policy uncertainty affects the cost of raising equity capital: Evidence from seasoned equity offerings

Yue-Cheong Chan, Walid Saffar and K.C. John Wei

Journal of Financial Stability, 2021, vol. 53, issue C

Abstract: Economic policy uncertainty (EPU) increases the cost of raising equity capital, especially when the economy is weak. A one standard deviation increase in the EPU index developed by Baker, Bloom, and Davis (2016) is associated with a 43 basis point increase in the price discount of seasoned equity offerings (SEOs) during the 2000−2014 period. The cross-sectional analysis shows that the EPU effect on SEO discounts is stronger for firms with greater dependence on government spending, less informative stock price, or a smaller EPU beta. Moreover, there are fewer SEO activities in periods when there is a high degree of policy uncertainty.

Keywords: Economic policy uncertainty; Seasoned equity offerings; SEO discounts (search for similar items in EconPapers)
JEL-codes: G24 G32 G38 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (24)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finsta:v:53:y:2021:i:c:s1572308920301443

DOI: 10.1016/j.jfs.2020.100841

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