Asymmetric information, investment banking contracts and the certification hypothesis

Kumar, P. C.; Tsetsekos, George P.

doi:10.1016/0378-4266(93)90083-p

Cited by 6 publications

(7 citation statements)

References 19 publications

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“…On this basis UK issues are 35% cheaper. The UK sample probably includes a higher proportion of non-underwritten issues than the US sample, since 98% of US SEOs are firm commitments rather than best efforts (Kumar and Tsetsekos, 1993). Restricting the UK sample to issues 90% or more underwritten (not shown), UK issues are 31% cheaper on average across the nine comparable size categories.…”

Section: Definitions and Preliminary Evidencementioning

confidence: 99%

The direct costs of UK rights issues and open offers

Armitage

2000

Euro Fin Management

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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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Section: Definitions and Preliminary Evidencementioning

confidence: 99%

The direct costs of UK rights issues and open offers

Armitage

2000

Euro Fin Management

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“…The issuing company hires an investment bank, known in this context as the underwriter, to organise the issue which is normally on a firm commitment (underwritten) basis; the shares are bought by the underwriter or underwriting syndicate before being sold. Only 2% are best efforts (non-underwritten) contracts (Kumar & Tsetsekos, 1993). Most underwriting contracts are negotiated with a particular investment bank rather than opened to competitive bids.…”

Section: Usamentioning

confidence: 99%

“…He believes the more negative reaction to shelf issues reflects less thorough certification of the issuer's value. Best efforts contracts also imply a lower level of certification as they are not underwritten, and Kumar & Tsetsekos (1993) report a more negative AAR on announcement of best efforts than of firm commitment offers.…”

Section: Us Evidence On Underwritingmentioning

confidence: 99%

Seasoned equity offers and rights issues: a review of the evidence

Armitage

1998

The European Journal of Finance

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The paper reviews evidence from the USA and UK on seasoned equity offers (SEOs) and rights issues. There are two main avenues of research: first, the market reaction to announcements of SEOs, and the related questions of the price elasticity of demand for new shares and the timing of issues; second, the costs of issuing and choice of issuing method. The negative reaction to announcements is well documented and the evidence suggests it is more due to an issue being a signal of overvaluation than to inelastic demand. Other findings are less well understood. The shares of issuers underperform appreciably in the long term, and there is evidence that market receptiveness to new issues varies. Companies tend to choose the most expensive method of issue both in terms of direct costs and negative market reaction. US companies use underwritten non-rights, through underwriting increases the direct costs. A possible explanation is that certification of issue value by the sponsor is more credible with non-rights issues in the USA and underwritten rights in the UK than with the apparently cheaper alternatives.seasoned equity offers, rights issues, investment banking,

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“…In the United States rights offerings have declined in frequency, having virtually disappeared by 1980. Further, only 2% of the firm commitments employ best efforts; that is, in 98% of these offerings the financial intermediary bears the risk of failure (Kumar and Tsetsekos, 1993). In all other countries the predominant flotation method has traditionally been rights, but here too the trend has been towards an increasing use of firm commitments.…”

Section: Introductionmentioning

confidence: 99%

Equity Rights Issues in Spain: Flotation Costs and Wealth Effects

Martín‐Ugedo

2003

Business Fin & Account

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This paper analyses the flotation costs and the share price reaction of equity offerings in Spain. The results report a positive relationship between relative flotation costs and the underwriting of an issue, and a negative relationship between such costs and ownership concentration. Fixed flotation costs and a negative relationship with the gross offer proceeds are also observed. On average, there is a negative share price reaction on the date of the 'previous communication' to the "Comisión Nacional del Mercado de Valores". The different sub-samples analysed according to the underwriting of the issue and the discount offered reveal no statistical differences. Copyright Blackwell Publishers Ltd, 2003.

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Asymmetric information, investment banking contracts and the certification hypothesis

Cited by 6 publications

References 19 publications

The direct costs of UK rights issues and open offers

The direct costs of UK rights issues and open offers

Seasoned equity offers and rights issues: a review of the evidence

Equity Rights Issues in Spain: Flotation Costs and Wealth Effects

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