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Cross‐Country Variability in Cost of Raising Equity: Evidence from Seasoned Equity Offerings
Author(s) -
Gupta Manu,
Prakash Puneet,
Rangan Nanda K.
Publication year - 2019
Publication title -
international review of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.489
H-Index - 18
eISSN - 1468-2443
pISSN - 1369-412X
DOI - 10.1111/irfi.12201
Subject(s) - underwriting , enforcement , business , equity (law) , equity risk , cost of equity , equity capital markets , corporate governance , private equity fund , finance , economics , private equity , cost of capital , political science , market economy , law , incentive
Abstract We examine how county‐level governance affects the cost of raising equity. Using data on seasoned equity offerings, we find that the underwriting spread is determined by the litigation risk of issue certifiers, and offer underpricing is largely determined by the investment risk of the equity issue. Underwriting spread increases with enhanced legal enforcement, offsetting the reduction in underpricing associated with strong legal enforcement. Our study offers insight into the effect of legal enforcement and regulatory policy on the cost of raising equity.