Direct equity financing; a resolution of a paradox: a reply
Article Abstract:
Smith and Dhatt (1984) object to the authors' 'Comparative Cost Hypothesis' based upon their claim that the cost function statistically overstates forecasted direct offer issuing costs for low control firms. Using information on recent nonunderwritten privileged subscription issues, as well as new information on the registrations contained in the original sample, it is shown that the previous conclusions are unaltered by the improved sample. It is demonstrated that Smith and Dhatt's functional forms are misspecified so as to inadequately account for direct costs for low control forms. An improved specification of Hansen and Pinkerton's flotation cost function is introduced and is shown to fully support the Comparative Cost Hypothesis.
Publication Name: Journal of Finance
Subject: Business
ISSN: 0022-1082
Year: 1984
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Underwriter compensation and corporate monitoring
Article Abstract:
Studies suggest that underwriting syndicates provide marketing services and certify the fairness of offer prices. We argue that syndicate lead banks also monitor manager effort, increasing the value of capital-raising companies. A given level of monitoring is associated with a given level of intrinsic value, so there is a "schedule" of certifiable offer prices, depending on the level of monitoring . Monitoring, marketing, and certification are, therefore, all legitimate syndicate functions. New evidence supporting the conclusion that syndicates provide corporate monitoring is presented. (Reprinted by permission of the publisher.)
Publication Name: Journal of Finance
Subject: Business
ISSN: 0022-1082
Year: 1992
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Direct equity financing; a resolution of a paradox: a comment
Article Abstract:
Hansen and Pinkerton (1982) advanced the 'Comparative Cost Hypothesis', which states that the company's choice between rights issue and general cash offer is resolved in a manner empirically consistent with issue cost minimization, as a resolution to the equity financing paradox. The sensitivity of their conclusion to the choice of empirical form of the rights issue cost function is examined. It is found that the empirical result is extremely sensitive to the functional form. Using two reasonable alternative specifications, the Comparative Cost Hypothesis is not supported.
Publication Name: Journal of Finance
Subject: Business
ISSN: 0022-1082
Year: 1984
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