Title

Determinants of underwriting spreads internationally: Evidence from SEOs

Abstract

We examine the effect of country-level factors on gross underwriting spreads in seasoned equity offerings. Controlling for issue, issuer and underwriter characteristics, we find that primary legal factors that impose direct court costs on underwriters significantly increase spreads. However, secondary legal, economic, and governance factors do not impact spreads significantly. We provide corroborative evidence that preemptive rights lower spreads, and thus, rights offering price concession is a form of transaction cost. We conclude that the non-primary legal factors not captured by market risk are likely incorporated at the time of underwriter-issuer contracting.

Document Type

Article

DOI

https://doi.org/10.1016/j.mulfin.2017.05.006

Keywords

political economy, legal enforcement, equity and bond markets, securities litigation, stock market valuation, seasoned equity offering

Publication Date

2017

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