Unseasoned Equity Financing

Robert M. Bear and Anthony J. Curley

Journal of Financial and Quantitative Analysis, 1975, vol. 10, issue 2, 311-325

Abstract: New stock financing is assuming increasing significance as a source of funds for private firms. The problem of management of external financing has grown as well. As a practical matter, financial managers must depend on the assistance of underwriters with respect to pricing and distribution of new corporate stock. But recent changes, some set in the context of the capital asset pricing model, imply systematic underpricing of new securities. If these charges are true, the financial manager is faced with the dilemma of paying monopsony profits, or accepting the cost and risk involved in taking the issue to market without the investment banker, or seeking an alternative source of funds. In any event, the process of marketing new equity depends on the relationship among the many characteristics unique to the firm and that firm's cost of equity capital. This paper discussed these interrelated issues.

Date: 1975
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