The Structure of External Financing Costs and the Economies of Scale View: New Evidence from Seasoned Equity Offerings in Germany

Abstract

This paper is focused on the cost of raising equity capital in Germany. In the spirit of Altinkilic¸and Hansen (2000) it challenges the conventional wisdom that flotation costs are characterised by economies of scale. For a sample of 120 SEOs on the German capital market over the years 1993 -98 it is found that average total flotation costs amount to 1.61% of gross proceeds, while average underwriting fees are about 1.32%. Moreover, it turns out that flotation costs rise the larger the free float of the company is and the larger the share of stocks offered within a firm commitment cash offering is. As far as the economies of scale view is concerned, we do not find clear evidence in favour of decreasing marginal flotation costs. Moreover, fixed costs seem not to be very high in that they account on average for not more than 14-24% of total flotation costs or total underwriting fees, respectively.

The cost of raising capital — New evidence from seasoned equity offerings in Switzerland

“…Similar evidence has been provided by BÜHNER/KASERER (2002) for Germany, by ARMITAGE (2000) for UK, and by GAJEWSKI/GINGLINGER (2002) for France. Similar evidence has been provided by BÜHNER/KASERER (2002) for Germany, by ARMITAGE (2000) for UK, and by GAJEWSKI/GINGLINGER (2002) for France.…”

“…Therefore, our results are by far more conclusive with respect to the economies of scale view than the papers of ALTINKILIÇ/HANSEN (2000) and BÜHNER/KASERER (2002). It aims at extending the literature in at least two directions.…”

“…For some reason, however, the costs of transacting these securities have been rather neglected. Therefore, for generalizing the results presented in BÜHNER/ KASERER (2002) it will be interesting to see whether their results will also hold for the Swiss capital market. underwriting fees and other costs that firm incur when issuing securities.…”

“…A lot of theoretical and empirical effort has gone into trying to understand the costs of different sources of capital. By analyzing a German SEOs sample BÜHNER/ KASERER (2002) find also no clear support for the economies of scale view, although they were able to show that flotation costs have a significant fixed cost component. This is particularly true for the direct flotation costs, i.e.…”

The Wealth Effects of Reducing Private Placement Resale Restrictions

“…11 One or more of these measures has been used in prior studies (e.g. Blackwell et al, 1990;Denis, 1991;Chollet and Ginglinger, 2001;Bühner and Kaserer, 2002;Wu, 2004;Bethel and Krigman, 2008). Table 3 Descriptive statistics of issuer and offering characteristics This table reports descriptive statistics for common stock private placements and special warrants segmented by the time period.…”