Do corporate governance attributes affect adverse selection costs? Evidence from seasoned equity offerings

We examine the relation between corporate governance attributes and perceived information asymmetry. In a sample of seasoned equity offerings between 1996 and 2001, we find that board independence, size of the audit committee, and officer and director ownership mitigate the negative effect of the equity offering announcement on share prices. These results are consistent with the notion that investors perceive certain governance systems to better align manager and shareholder incentives, which improves firm access to capital markets.     

Does corporate governance influence convertible bond issuance?

We examine the influence of corporate governance quality on firms' choice between convertible debt, straight debt, and equity using a Western European sample of security offerings made between 2000 and 2010. We find that weaker firm-specific and country-specific corporate governance quality increases firms' likelihood of issuing convertible debt instead of straight debt and common equity. We also find that stockholder reactions to convertible debt announcements are more favorable for firms with weaker corporate governance. Our results suggest that corporate governance quality is a significant security choice determinant, with firms using convertible debt as a substitute for high quality governance mechanisms.     

Revisiting corporate dividends and seasoned equity issues

Information signaling is regarded as an important motivating factor in corporate payout decisions, particularly with regard to cash dividends and the costly information signaling which they provide. Although Loderer and Mauer (1992) find little evidence to suggest that the announcements of firms’ equity offers are timed to arrive just after dividend declarations as a means of supporting the offer price. Using updated data, we determine that the dividend declaration does have a positive effect on the market reaction to equity offering announcements. We find that the abnormal returns from the announcement of seasoned equity offerings (SEOs) were −1.45 per cent for those SEO firms which had already made dividend declarations, whereas the returns for those SEO firms where the equity issue did not immediately follow a dividend declaration were −1.83 per cent. In this study, we interpret the changes in the impact of the dividend declaration on the equity offering announcement using the ‘tax regulation hypothesis’ and the ‘information asymmetry hypothesis’, and find that while our empirical results provide strong support for the latter, they provide only weak support for the former.     

Underwriting relationships: Information production costs, underwriting fees, and first mover advantage

We study underwriting relationships in the floating rate debt market, where many issuers have a large number of offerings. We find that frequent issuers maintain close relationship with only three to five underwriters and pay significantly less underwriting fees than infrequent issuers. The findings are consistent with the notion that starting an underwriting relationship requires expenses for information production. We also find that an issuer’s first underwriter has a cost advantage over later-comers in competing for the issuer’s business. As a result, the first underwriter wins a larger share of the issuer’s business. JEL Classification G21 · G24     

Underwriter choice and earnings management: evidence from seasoned equity offerings

Using a sample of seasoned equity offerings (SEOs), this paper examines the association between the choice of financial intermediary and earnings management. We contend that with more stringent standards for certification and intense monitoring, highly prestigious underwriters restrict firms’ incentives for earnings management to protect their reputation and to avoid potential litigation risks, while firms with greater incentives for earnings management avoid strict monitoring by choosing low-quality underwriters. Consistent with our predictions, we find an inverse association between underwriter quality and issuers’ earnings management. In addition, we find that underwriter quality is positively related to SEOs’ post-issue performance, even after controlling for the effect of earnings management. We also find that firms with low-underwriter prestige and high levels of earnings management under-perform the most. However, the effect of underwriter choice on post-issue performance does not last long.

Contracting under asymmetric information: Evidence from lockup agreements in seasoned equity offerings

We document the frequent use of lockup agreements in seasoned equity offerings (SEOs) and examine the determinants of their use, duration, and early release. We find that the likelihood of an SEO lockup and its duration are positively related to issuer information asymmetry measures. Lockup duration is negatively related to underwriter spreads and underpricing, indicating that lockups lower expected flotation costs. Lockups are frequently released early following share prices rises. We conclude that lockups represent a contracting solution to asymmetric information and agency problems that plague equity issues by helping to insure SEO quality and deter opportunistic insider trading.     

How do investors underreact to seasoned equity offerings? Evidence from Taiwan's corporate governance evaluation

This study examines whether long-run stock underperformance following seasoned equity offerings (SEOs) differs with a firm's corporate governance practices. We address this issue by using Taiwan's official annual corporate governance evaluation to represent the quality of firm governance. Results show that firms with better governance exhibit positive long-run post-SEO stock performance, whereas those with poor governance continue to be underperforming after SEOs. Our findings reveal that investor’ underreaction to SEOs varies with the levels of corporate governance.     

The Implications of Equity Issuance Decisions within a Parent-Subsidiary Governance Structure

We provide evidence about the motivation for a parent–subsidiary governance structure by analyzing valuation effects of seasoned equity offerings by publicly traded affiliated units. Our results support Nanda's (1991) theoretical model which predicts equity offerings convey differential information about subsidiary and parent value. Subsidiary equity issuance has negative valuation effects on issuing subsidiaries and positive effects on parents, while parent equity issuance reduces issuing parent wealth and increases subsidiary wealth. Our evidence suggests that a parent–subsidiary organizational structure enhances corporate financing flexibility and mitigates underinvestment problems identified by Myers and Majluf (1984) . There is no evidence of subsidiary wealth expropriation.     

Intended Use of Proceeds,Underwriter Quality and the Long‐run Performance of SEOs in the UK

We document that prospectus disclosure of (i) the motives for a seasoned equity offering, and (ii) the choice of underwriter explain the long‐run performance of equity issuers in the UK. Firms citing investment needs show no abnormal performance after the offering and have higher investment rates post‐issue compared to the period before the offering. Issuers that state general corporate purposes and recapitalisation motives underperform, have similar investment rates pre‐ and post‐issue, and their leverage tends to increase after the offering. Further, consistent with the certifying role of underwriters, equity issues underwritten by high‐quality brokers show no evidence of post‐issue abnormal returns, but offerings taken public by low‐quality underwriters exhibit negative abnormal performance. Together, our results document the significant role that prospectus information on the intended use of offering proceeds and on the underwriter play in predicting issuers post‐offering performance in the UK.     

Policy uncertainty and seasoned equity offerings methods

Based on a sample of U.S. seasoned equity offering (SEO) during the period 2002–2017, we examine how the choice of equity issuance method changes in response to policy uncertainty. We find that firms subject to high policy uncertainty are less likely to use accelerated offerings rather than other types of traditional seasoned equity offerings. Our results are robust to alternative variable specifications, propensity score matching method, IV approach, and the inclusion of additional controls. Also, the effect of policy uncertainty on accelerated offering decision is weaker for firms with better information environment, earnings quality, and governance structures. Further, policy uncertainty increases the cost of funds and lowers long-run abnormal returns after SEOs for firms subject to high levels of policy uncertainty.     

IS THERE A SIGNALING EFFECT OF UNDERWRITER REPUTATION?

In this article we examine the effect of underwriter reputation on the abnormal return due to an announcement to issue seasoned new equity. After controlling for other factors that relate asymmetric information to abnormal returns, underwriter reputation still significantly reduces the magnitude of the negative announcement effect. We also develop a procedure to extract a signaling component from the measure of underwriter reputation. We show that the signaling component of underwriter reputation positively and significantly affects abnormal returns. This result supports the notion that issuing firms use underwriter reputation as an effective instrument to signal that their stocks are not overvalued. JEL classification: D82, G24, G30     

Rights Offerings and Corporate Financial Condition

Certain American industrial firms still use equity rights offerings. Most of these offerings are uninsured. I examine firms' financing decisions, and develop the explanation that rights offerings are used by firms in financial distress with difficulty accessing underwriting services. These firms have little to lose from the costs of adverse selection that accompany the lack of underwriter certification of uninsured rights offerings. Probit analysis of 660 seasoned NYSE, Amex, and Nasdaq equity issues between 1983–1999 yields results consistent with my explanation. There is no evidence that variables previously linked to rights usage (e.g., ownership concentration) continue to be relevant to the issue method choice.     

Institutional Investors and Private Equity

Entrepreneurial finance literature has highlighted that institutionalinvestors are the main contributors to private equity funds.This paper complements these findings by documenting that institutionalinvestors also invest directly in private equity. A major concernfor such investments is the higher agency costs associated withprivate equity. We show that institutions invest in privatefirms with governance mechanisms that tend to reduce the expectedagency costs and risk of minority expropriation. Good governancemechanisms further allow institutional investors to enjoy thebenefits of syndication and thereby reduce idiosyncratic risk.In addition, we show that institutional investments tend tobe followed by further improvements in corporate governanceand tend to occur in high-growth firms within research and developmentintensive industries.     

Heterogeneous Beliefs,IPO Valuation,and the Economic Role of the Underwriter in IPOs

We empirically analyze the economic role of the underwriter in initial public offerings (IPOs), distinguishing between the “certification” and “market power” hypotheses. We find that equity in high‐reputation underwriter backed IPOs is priced higher and further away from intrinsic value than that in low‐reputation underwriter backed IPOs. Our results are robust to controlling for the endogenous selection of firms to take public by underwriters. Overall, our results support the market power hypothesis and reject the certification hypothesis, indicating that the role of underwriters is to obtain the highest possible valuation for the IPOs that they back rather than to price the equity close to intrinsic value.     

Analyst forecast characteristics and the cost of debt

We examine the relation between analyst forecast characteristics and the cost of debt financing. Consistent with the view that the information contained in analysts’ forecasts is economically significant across asset classes, we find that analyst activity reduces bond yield spreads. We also find that the economic impact of analysts is most pronounced when uncertainty about firm value is highest (that is, when firms have high idiosyncratic risk). Our findings are robust to controls for private information in equity prices and level of corporate disclosures. Overall, the results indicate that the information contained in analyst forecasts is valued outside the equity market and provide an additional channel in which better information is associated with a lower cost of capital.     

The revival of shelf-registered corporate equity offerings

We report that traditional seasoned equity offerings (SEOs) are no longer firms' preferred choice for raising seasoned public equity. Traditional offerings have recently been surpassed by shelf-registered offerings in terms of both annual frequency and total capital raised. This represents a dramatic shift from the 1980s, during which the overwhelming majority of firms favored traditional over shelf-registered offerings. We find that the growth in shelf use is related to firms increasingly valuing and using the option feature of shelf registration to defer offerings. Moreover, the evidence indicates that the way firms now use shelf offerings resolves the shelf under-certification problem and results in no larger market penalties and significantly lower underwriter fees relative to non-shelf offerings. Finally, firms often use universal shelf filings and choose between debt and equity offerings based on the prevailing relative market conditions.     

董事高管责任保险、权益资本成本与上市公司再融资能力

基于公司治理角度,使用2002~2012年沪深引进董事高管责任保险的上市公司为样本,考察了董事高管责任保险、权益资本成本和上市公司再融资能力三者之间的相互关系。研究表明：董事高管责任保险与上市公司的再融资能力负相关,与权益资本成本呈显著正相关关系;权益资本成本在董事高管责任保险和上市公司再融资能力影响机制中发挥中介作用。具体地,投资者因规避责任保险机制庇护下公司高管自利行为可招致的风险,导致上市公司权益资本成本增加,从而降低了公司再融资能力。     

Multiple large shareholders, control contests, and implied cost of equity

In this paper, we examine whether the presence of multiple large shareholders alleviates a firm's agency costs and information asymmetry manifested in the cost of equity financing. Using data for 1165 corporations from 8 East Asian and 13 Western European countries, we find evidence that the implied cost of equity decreases with the presence, number, and voting size of large shareholders beyond the controlling owner. We also find that the identity of the second largest shareholder is important in determining the risk of corporate expropriation in family-controlled firms. Our regional analysis reveals that, mainly in East Asian firms, multiple large shareholders structures exert an internal governance role in curbing private benefits and reducing information asymmetry, perhaps to sidestep deficiencies in the external institutional environment.     

Do early and voluntary filers of financial information in XBRL format signal superior corporate governance and operating performance?

On March 16, 2005, the SEC issued Final Rule 33-8529 encouraging registrants to voluntarily file tagged financial statement information on the EDGAR reporting System using XBRL format. In this paper, we examine whether early and voluntary filers of financial information in XBRL format demonstrate superior corporate governance and operating performance relative to their non-adopting peers. We investigate performance, market, and structure-related firm variables. Our results suggest that corporate governance is significantly and positively associated with a firm's decision to be an early and voluntary filer of financial information in XBRL format. At the same time, firm performance factors including liquidity and firm size are also associated with the early and voluntary XBRL filing decision. Our findings should be particularly interesting for the SEC, as it considers the corporate governance and firm-performance related associations between certain registrants' early and voluntary response and its call for XBRL-based filings.     

Multiple corporate governance attributes and the cost of capital – Evidence from Germany

This paper investigates the extent to which corporate governance affects the cost of debt and equity capital of German exchange-listed companies. I examine corporate governance along three dimensions: financial information quality, ownership structure and board structure. The results suggest that firms with high levels of financial transparency and bonus compensations face lower cost of equity. In addition, block ownership is negatively related to firms' cost of equity when the blockholders are other firms, managers or founding-family members. Consistent with the conjecture that agency costs increase with firm size, I find significant cost of debt effects only in the largest German companies. Here, the creditors demand lower cost of debt from firms with block ownerships held by corporations or banks. My findings demonstrate that a uniform set of governance attributes is unlikely to satisfy suppliers of debt and equity capital equally.