Managing the Costs of Issuing Common Equity: The Role of Registration Choice

Bought deals: The value of underwriter certification in seasoned equity offerings

“…For example, earlier studies by Asquith and Mullins (1986), Masulis and Korwar (1986), and Eckbo and Masulis (1992) report two-day average abnormal returns of about À2.0% for public seasoned equity issues. Recent studies by Altınkılıç and Hansen (2003), Heron and Lie (2004), Bethel and Krigman (2008), and Elliott et al (2009) also document negative announcement effects of similar magnitudes. Booth and Smith (1986) and Eckbo and Masulis (1992) presume that underwriters provide a valuable service by certifying that an issuing firm's shares are not mispriced.…”

“…He shows that because of a lack of underwriter certification in shelfregistered issues, the announcement of a shelf equity offering results in a larger negative impact on the issuing firm's stock price than the non-shelf procedure. Autore et al (2008) and Bethel and Krigman (2008) Legislation allows this period to be fewer than ten days. are associated with smaller market penalties relative to non-shelf issuers due to the changes in how firms use shelf registration and the types of firms choosing to use the shelf procedure.…”

“…A plethora of empirical studies document these costs, finding negative announcement-day stock price reactions (e.g. Asquith and Mullins, 1986;Masulis and Korwar, 1986;Eckbo and Masulis, 1992;Heron and Lie, 2004;Bethel and Krigman, 2008;Elliott et al, 2009) and economically large offer price discounts (e.g. Altınkılıç and Hansen, 2003;Corwin, 2003;Mola and Loughran, 2004) for seasoned public equity offerings.…”

The revival of shelf-registered corporate equity offerings

“…Most previous studies, with the notable exception of Bethel and Krigman (2006), examine only completed shelf offerings, which can result in a bias in our sample period 1990-2003 because the majority of shelf filings do not lead to equity offers.…”

“…Their conclusion that shelf offers are less likely to be opportunistically timed, relative to non-shelf offers, supports our argument of reduced certification needs for shelf offers. Bethel and Krigman (2006) focus primarily on a firm's cost-based SEC registration strategy. They find that high information asymmetry firms choosing (under-certified) shelf registration incur large market penalties.…”