The paper outlines widely used methods of estimating abnormal returns and testing their significance, highlights respects in which they differ conceptually, and reviews research comparing results they produce in various empirical contexts. Direct evidence on the performance of different methods is available from simulation experiments in which known levels of abnormal return are added. The market model is most commonly used to generate expected returns and no better alternative has yet been found despite the weak relationship between beta and actual returns. Choice of procedure for significance testing depends on the characteristics of the data. The evidence indicates that in many cases the best procedure is to standardise market model abnormal returns by their time series standard errors of regression and use the ?-test. Alternatively a rank test appears to be at least as powerful. If errors are crosscorrelated or increase in variance during the test period, other methods discussed should be used.

Eckbo and Masulis (1992) and Slovin, Sushka and Lai (2000) have proposed that underwriters of seasoned equity offers certify issuer value. The study tests predictions resulting from these papers and finds little evidence from UK rights issues and open offers that underwriting banks certify. The main purpose of underwriting appears to be simply to guarantee the proceeds. There is a positive reaction to open offers (a type of private placing) but this is unlikely to be due to underwriter certification. There is a large loss of value for companies announcing deeply discounted offers, which is attributed to release of bad news on announcement Copyright Blackwell Publishers Ltd 2002.

The majority view of the executives interviewed is that disclosure reduces the cost of equity up to the point at which a good-practice level of communication has been reached, after which there is little further effect. Greater disclosure to rating agencies and lenders reduces the cost of debt. Attitudes towards more mandatory disclosure are mostly negative. The main perceived cost of disclosure is creating the information. The main benefits are promotion of a reputation for openness and of shareholder confidence, not a lower cost of capital. We suggest that a reputation for openness is valued because it enhances the company's overall reputation, which brings commercial benefits.

The paper describes selling and underwriting procedures in rights issues and open offers, and analyses the costs of issue reported in prospectuses, including the substantial costs which are not for underwriting. The impression is often given that costs are fixed at 2% of gross proceeds, but they vary and average 5.78% (median 4.28%). Controlling for economies of scale and fees not related to the issue, costs increase with the proportion of the issue underwritten and with the depth of discount, and decrease with the proportion of the company owned by large shareholders.

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