The Choice of Issuance Procedure and the Cost of Competitive and Negotiated Underwriting: An Examination of the Impact of Rule 50

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38 citations0/0 files storedThe Journal of Finance

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Corporate Finance and Governance Financial Analysis and Corporate Governance Credit Risk and Financial Regulations

Abstract

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.

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References

1978Unionism and Wage Rates: A Simultaneous Equations Model with Qualitative and Limited Dependent Variables 1986Investment banking and the capital acquisition process 1986Capital raising, underwriting and the certification hypothesis 1977Alternative methods for raising capital 1986Issuing costs to existing shareholders in competitive and negotiated underwritten public utility equity offerings 1979The Impact of Underwriting Method and Bidder Competition Upon Corporate Bond Interest Cost

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