Do shareholder rights influence the direct costs of issuing seasoned equity?

Don M. Autore (), Jeffrey Hobbs (), Tunde Kovacs () and Vivek Singh ()
Additional contact information
Don M. Autore: Florida State University
Jeffrey Hobbs: Appalachian State University
Tunde Kovacs: University of Massachusetts-Lowell

Review of Quantitative Finance and Accounting, 2019, vol. 52, issue 1, No 1, 33 pages

Abstract: Abstract We test the hypothesis that underwriters set higher gross spreads and deeper offer price discounts in seasoned equity offers of firms exhibiting weak shareholder rights as compensation for increased reputational risk and legal liability. Alternatively, if market participants are fully aware of the risks related to weak shareholder rights and efficiently price them, then underwriters arguably do not need to adjust issuance costs for firms with weak governance. Our results indicate that, on average, shareholder rights and direct issue costs are unrelated, supporting an efficient pricing view. However, upon closer examination, we find that underwriters charge higher gross spreads when the issuing firm has either an extremely low level of shareholder rights or a substantially lower level than expected, which are likely the cases in which the underwriter’s reputational risk is highest.

Keywords: Shareholder rights; Anti-takeover provisions; Investment banks; Seasoned equity offers; Gross underwriter spreads; Offer price discounts (search for similar items in EconPapers)
JEL-codes: G32 G34 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://link.springer.com/10.1007/s11156-018-0701-1 Abstract (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:kap:rqfnac:v:52:y:2019:i:1:d:10.1007_s11156-018-0701-1

Ordering information: This journal article can be ordered from
http://www.springer.com/finance/journal/11156/PS2

DOI: 10.1007/s11156-018-0701-1

Access Statistics for this article

Review of Quantitative Finance and Accounting is currently edited by Cheng-Few Lee

More articles in Review of Quantitative Finance and Accounting from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().