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Direct Equity Financing: A Resolution of a Paradox
Author(s) -
HANSEN ROBERT S.,
PINKERTON JOHN M.
Publication year - 1982
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/j.1540-6261.1982.tb02215.x
Subject(s) - underwriting , equity financing , equity capital markets , equity (law) , economics , finance , private equity fund , direct cost , cost of equity , resolution (logic) , business , cost of capital , public economics , financial economics , private equity , microeconomics , indirect costs , accounting , political science , incentive , debt , artificial intelligence , computer science , law
When raising new equity capital managers have historically rejected the direct offer method favoring instead the seemingly more expensive underwritten public issue. This paper provides a resolution for this equity financing paradox by demonstrating empirically that firms which engage in direct offers enjoy a comparative cost advantage that is more than sufficient to account for the absolute reported cost differences between the two methods of equity financing.