The Costs of Issuing Private Versus Public Equity for Entrepreneurial Ventures

The Oxford Handbook of Private Equity. D Cumming ed., Oxford University Press 2012

34 Pages Posted: 3 Mar 2010 Last revised: 13 Apr 2012

See all articles by Cécile Carpentier

Cécile Carpentier

Laval University; Center for Interuniversity Research and Analysis on Organization (CIRANO); University of Lille II - European Center for Corporate Control Studies

Jean-Francois L'Her

Canada Pension Plan Investment Board; Caisse de Depot et Placement du Quebec (CDPQ)

Jean-Marc Suret

Laval University; Center for Interuniversity Research and Analysis on Organization (CIRANO); European Center for Corporate Control Studies

Date Written: January 18, 2010

Abstract

Small Canadian listed firms issue private offerings more often than public offerings. We analyze the way the firms discriminate between competing selling mechanisms to minimize their issuance costs. We examine a sample of 799 private placements (PPs) and 469 seasoned equity offerings (SEOs) issued by small and medium-sized enterprises between 1993 and 2003. In sharp contrast with the situation observed for other countries, both categories of issuers are similar in size, profitability and development stage. As expected, PPs are discounted more than SEOs, although the commissions paid to investment bankers are lower. When we control for size and other characteristics of the issuers, the difference between the total cost is 6% of the gross proceeds. Although this figure is significant, if the PP process allows firms to obtain financing four or six months earlier than via public offering, the price gap may be economically justifiable. We do not observe significant differences between the total cost of SEOs and direct PPs. This finding, together with the regulatory changes that reduce the resale restriction period, may explain the growing use of the PP market.

Keywords: Entrepreneurial venture, financing, private placement, SEOs

Suggested Citation

Carpentier, Cécile and L'Her, Jean-Francois and Suret, Jean-Marc, The Costs of Issuing Private Versus Public Equity for Entrepreneurial Ventures (January 18, 2010). The Oxford Handbook of Private Equity. D Cumming ed., Oxford University Press 2012. Available at SSRN: https://ssrn.com/abstract=1561945

Cécile Carpentier

Laval University ( email )

Pavilion Palasis Prince
Quebec, Quebec G1V 0A6
Canada

Center for Interuniversity Research and Analysis on Organization (CIRANO) ( email )

2020 rue University, 25th floor
Montreal, Quebec H3C 3J7
Canada

University of Lille II - European Center for Corporate Control Studies ( email )

2 rue de Mulhouse
BP381
Lille, 59800
France

Jean-Francois L'Her

Canada Pension Plan Investment Board ( email )

One Queen Street East
Suite 2600
Toronto, Ontario M5C 2W5
Canada

Caisse de Depot et Placement du Quebec (CDPQ) ( email )

1000, place Jean-Paul-Riopelle
Montreal, Quebec H2Z 2B3
Canada

Jean-Marc Suret (Contact Author)

Laval University ( email )

Accounting School
Quebec, P.Q. G1K 7P4
Canada
418-656-7134 (Phone)
418-656-7746 (Fax)

Center for Interuniversity Research and Analysis on Organization (CIRANO) ( email )

1130 rue Sherbrooke Ouest
Bureau 1400
Montreal, Quebec H3A 2M8
Canada

European Center for Corporate Control Studies ( email )

2 rue de Mulhouse
BP381
Lille, 59800
France

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