THE COSTS OF RAISING CAPITAL

We report the average costs of raising external debt and equity capital for U.S. corporations from 1990 to 1994. For initial public offerings (IPOs) of equity, the direct costs average 11.0 percent of the proceeds. For seasoned equity offerings (SEOs), the direct costs average 7.1 percent. For conve...

Full description

Saved in:
Bibliographic Details
Published in:The Journal of financial research 1996-04, Vol.19 (1), p.59-74
Main Authors: Lee, Inmoo, Lochhead, Scott, Ritter, Jay, Zhao, Quanshui
Format: Article
Language:English
Subjects:
Bond issues
Costs
Debt financing
Economic theory
Initial public offerings
Securities offerings
Statistical analysis
Studies
Citations: Items that this one cites
Items that cite this one
Online Access:Get full text
Tags: Add Tag
No Tags, Be the first to tag this record!
Description
Summary:We report the average costs of raising external debt and equity capital for U.S. corporations from 1990 to 1994. For initial public offerings (IPOs) of equity, the direct costs average 11.0 percent of the proceeds. For seasoned equity offerings (SEOs), the direct costs average 7.1 percent. For convertible bonds, the direct costs average 3.8 percent. For straight debt issues, the direct costs average 2.2 percent, although they are strongly related to the credit rating of the issue. All classes of securities exhibit economies of scale, although they are less pronounced for straight debt issues. IPOs also incur a substantial indirect cost due to short‐run underpricing. Most large equity offers include an international tranche, although debt issues do not.
ISSN:0270-2592
1475-6803
DOI:10.1111/j.1475-6803.1996.tb00584.x