The Costs of Equity Issues Since Rule 415: A Closer Look

Abstract

In this paper I re-examine the effect of shelf registration (SEC Rule 415) on the underwriter fees of firms issuing equity. The data indicate that lower fees cannot be obtained by typical firms using the shelf procedure. Rather, previously documented evidence of lower underwriter spreads for shelf issues appears to be due to a selection bias in the firms choosing shelf registration. These firms enjoy a comparative cost advantage over other firms regardless of the registration procedure used.

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

“…Blackwell et al (1990) also document a cost differential in favor of shelf offerings, on average. Denis (1993), however, finds there is no issuance cost advantage once controlling for sample selection. Consistent with this, Sherman (1999) develops a model showing that shelf registration causes both an increase in underwriter competition and a reduction in duediligence investigation so that underwriting fees seem essentially the same for shelf and non-shelf issuers.…”

Securities litigation, withdrawal risk and initial public offerings

“…Because Kim et al (2008) show that the entry of commercial banks into the IPO underwriting market reduces gross spreads, I try to use their control variables in the regression equation for comparison purpose. The control variables include various determinants of gross spreads documented in the IPO literature, for example, underwriter reputation (Carter and Manaster, 1990), VC-backing (Megginson and Weiss, 1991), proceeds (Denis, 1993;Lee et al, 1996;Chen and Ritter, 2000;Altinkilic and Hansen, 2000), firm age (James, 1992), and return volatility (Hansen, 2001). In particular, the commercial bank dummy controls for the direct effect of commercial bank entry into the IPO underwriting market.…”

The revival of shelf-registered corporate equity offerings

“…Blackwell, Marr, and Spivey (1990) find evidence of a higher fee premium for higher volatility firms with higher expected due diligence liability, but a cost differential in favor shelf offers, on average. Denis (1993), however, reports that after excluding non-syndicated shelf offers that have zero underwriter fees and (1) and (2) explain the filing reaction (FILECAR) using the full sample. Models (1a) and (2a) explain the sum of FILECAR and the pre-offer filing (PREOFFCAR) using the full sample of non-shelf offers (for non-shelf, PREOFFCAR = 0) and using only the shelf offers that have pre-offer filings (n = 191).…”