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Abstract:
This paper examines time series patterns of external financing decisions and shows that publicly traded U.S. firms fund a much larger proportion of their financing deficit with external equity when the cost of equity capital is low. The historical values of the cost of equity capital have long-lasting effects on firms' capital structures through their influence on firms' historical financing decisions. We also introduce a new econometric technique to deal with biases in estimates of the speed of adjustment towards target leverage. We find that firms adjust toward target leverage at a moderate speed, with a half-life of 3.7 years for book leverage, even after controlling for the traditional determinants of capital structure and firm fixed effects.

capital structure, market timing, static tradeoff, speed of adjustment

Abstract:
This paper examines time series patterns of external financing decisions and shows that publicly traded U.S. firms fund a much larger proportion of their financing deficit with external equity when the cost of equity capital is low. The historical values of the cost of equity capital have long-lasting effects on firms' capital structures through their influence on firms' historical financing decisions. We also introduce a new econometric technique to deal with biases in estimates of the speed of adjustment towards target leverage. We find that firms adjust toward target leverage at a moderate speed, with a half-life of 3.7 years for book leverage, even after controlling for the traditional determinants of capital structure and firm fixed effects.

capital structure, market timing, pecking order, static tradeoff, speed of adjustment, long difference

Abstract:
This paper examines the structure and cost of a large sample of bank loans to private firms. Compared to public firms, private firms are more informationally opaque and riskier. The results suggest that the design of a loan to a private firm is significantly different from that to a public firm. Bank loans to private firms are more likely to be by a sole lender, collateralized, and have sweep covenants than loans to public firms. The cost of borrowing is higher for a private firm than for a public firm, even after holding constant firm and loan characteristics.

private firm financing, loan structure, loan pricing, bank financing, information opacity, credit risk, bank loans

Abstract:
We examine investment banks' networking function in capital markets, using a sample of Private Investments in Public Equity (PIPEs). We argue that investment banks develop relationships with investors through repeat dealings, and that such relationships form the basis of their networking function. We find that investment banks, especially those with stronger networking abilities, help issuers attract more investors. Investors are more likely to participate in an issue if they have an existing relationship with the issue's investment bank(s). Correspondingly, an issuer that desires more investors is more likely to hire an investment bank than place the shares directly. We also find that issuers pay higher fees to hire investment banks with stronger networking abilities. Our empirical findings suggest that the networking function of investment banks is important in securities offerings.

Investment Bank, Networking Function, Investor Participation, Private Investment in Public Equity, PIPE, Placement Agent, Fees

Abstract:
We study the role of corporate governance in abnormal returns around announcements of seasoned equity offerings (SEOs) by publicly traded U. S. firms from 2001 - 2004. We find that investors react more positively for firms in which different people hold the CEO and board chairman positions. We also find limited evidence that investor reaction is more positive when the board has a greater representation of outside directors, the CEO has less ownership, and the board is not too large. Our findings suggest that investors react more favorably to SEOs by firms with stronger corporate governance mechanisms that reduce adverse selection or agency problems.

SEO, Announcement Effect, Corporate Governance, CEO Power, CEO Duality, CEO Ownership, Board of Directors, Board Effectiveness, Board Independence

Abstract:
Using a sample of 2,281 SEOs from 1995-2004, we show that the marketing of securities is important to issuers. The number of managing underwriters for an SEO is negatively related to the offer price discount, especially when the relative offer size is large and the stock return volatility is high. Larger investor networks of co-managing underwriters also lower offer price discounts. We argue that the evidence is supportive of the marketing hypothesis - the underwriters' marketing efforts can lower the offer price discount by shifting up and flattening the demand curve of an SEO.

Marketing of Securities, Price Pressure, SEOs, Investment Banks, Managing Underwriters, Investor Networks, Offer Price Discounts

Abstract:
Using a large sample of convertible and straight debt issues in the public, 144A, and bank loan markets from 1991-2004, we find that the 144A market has risen largely at the expense of the non-shelf public market, the overwhelming majority of the 144A issues are subsequently registered, and straight debt issuers with the highest credit quality and transparency tend to use the shelf public market. Our findings suggest that firms’ preference for speed of issuance drives the growth of the 144A market, and banks and qualified institutional buyers have advantages over public lenders in handling credit risk and information asymmetry.

Speed of issuance, lender specialization, credit rating, credit quality, information asymmetry, 144A, Rule 144A, shelf registration, convertible, straight debt, bank loan, investment grade, junk bond, security choice, market choice, debt markets, debt issuance, Dealscan, PlacementTracker

Abstract:
This paper examines the structure and cost of a large sample of bank loans to private firms. Compared to public firms, private firms are more informationally opaque and riskier. The results suggest that the design of a loan to a private firm is significantly different from that to a public firm. Bank loans to private firms are more likely to be by a sole lender, collateralized, and have sweep covenants than loans to public firms. The cost of borrowing is higher for a private firm than for a public firm, even after holding constant firm and loan characteristics.