Issue Costs and Common Stock Offerings

Abstract

Prior research of common stock offerings reaches different conclusions concerning the impact of issue costs on stock value. We identify factors that can best explain the different findings—most prominent are the issue costs measure and the listing. We investigate 323 common stock offerings and find that $61 of every $100 fall in stock value can be attributed to issue costs. The respective dollar amounts for the samples of OTC, AMEX, and NYSE firms are $72, $69, and $38. These findings suggest that the collective impact of the negative wealth effects from managerial signaling may be less important than generally assumed. Mikkelson and Partch (1986) and Hull and Fortin (1993/1994) are the only studies to examine in detail the impact of issue costs on announcement period stock returns for equity offerings. These two studies reach different conclusions. Mikkelson and Partch (1986) find that offering costs are a relatively small

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