The transactions costs of primary market issuance: the case of Brazil, Chile, and Mexico

Sara Zervos

No 3424, Policy Research Working Paper Series from The World Bank

Abstract: The author documents the precise costs of debt and equity issuance, both domestically and internationally, for firms in Brazil, Chile, and Mexico. Costs include investment banking and legal fees, regulatory and exchange listing costs, rating agency fees, and expenditures for marketing and publishing. Her findings suggest that Brazilian firms face similar costs in issuing debt locally or abroad, whereas domestic equity issuance is nearly twice as expensive as debt. While the Chilean domestic corporate debt market is well developed by emerging market standards (size of the market and maturity of issues), Chilean firms can issue debt more cheaply internationally than at home. In addition, while equity financing is cheaper in Chile from a transaction cost perspective, over the past decade most firms have used bonds rather than shares to raise capital. This financing trend is true in all three countries. Finally, Mexican firms can issue debt at the lowest costs of the three, but face the highest equity issuing costs. In addition to documenting these features, the author sheds light on how the investor base in these countries plays a strong role in influencing the ability of firms to access domestic capital markets.

Keywords: Financial Intermediation; International Terrorism&Counterterrorism; Economic Theory&Research; Payment Systems&Infrastructure; Banks&Banking Reform; Economic Theory&Research; Financial Intermediation; Banks&Banking Reform; Environmental Economics&Policies; Housing Finance (search for similar items in EconPapers)
Date: 2004-10-01
New Economics Papers: this item is included in nep-dev
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Citations: View citations in EconPapers (26)

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