The choice of issuance procedure and the cost of competitive and negotiated underwriting: an examination of the impact of Rule 50

Article Abstract:

Previous research suggests that firms choose negotiated issuance over competitive despite its apparently higher net interest cost. This result is shown to arise partly from failure to correct for a selectivity bias in the choice of issuance procedures. Two stage analysis is used in a model that includes qualitative and limited dependent variables to re-estimate the net interest cost difference between competitive and negotiated issues. Results support the hypothesis that the choice of issuance procedure is consistent with shareholder wealth maximization. Examination of debt issues subject to Rule 50 of the Public Utility Holding Company Act indicates that the regulation, as applied, is not effective. (Reprinted by permission of the publisher.)

Analysis, Stocks, Financial research

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Determinants of contract choice: the use of warrants to compensate underwriters of seasoned equity issues

Article Abstract:

The issuer's decision to include warrants as compensation to underwriters is studied for a sample of 1,991 negotiated firm commitment issues of seasoned equity. Using a two-stage logit model to correct for self-selection bias, we find direct evidence that warrant compensation functions as a bond, substituting for reputational capital and enabling the underwriter to certify the issue price. To a lesser degree, the decision also is affected by regulations on underwriter compensation and on the use of underwriter warrants. Issuers' decisions are consistent with an objective of minimizing total underwriting cost, including cash compensation, warrants, and underpricing. (Reprinted by permission of the publisher.)

Stock warrants

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Evidence on the determinants of credit terms used in interfirm trade

Article Abstract:

Trade credit is created whenever a supplier offers terms that allow the buyer to delay payment. In this paper we document the rich variation in interfirm credit terms and credit policies across industries. We examine empirically the firm's basic credit policy choices: whether to extend credit or to require cash payment; and, if credit is extended, whether to adopt simple net terms or terms with discounts for prompt payment. We also examine determinants of variations in two-part terms. Results are supportive primarily of theories that explain credit terms as contractual solutions to information problems concerning product quality and buyer creditworthiness. (Reprinted by permission of the publisher.)

Commercial Banks, Commercial Banking, Business Financing, Business-to-business market, Business to business market, Credit management, Commercial credit

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