Does Financial Market Structure Impact the Cost of Raising Capital?
61 Pages Posted: 21 Nov 2017 Last revised: 5 Feb 2020
Date Written: February 3, 2020
We provide evidence on market structure and the cost of raising capital by examining market structure changes in US equity markets. Only the Nasdaq's Order Handling Rules (OHR), the one reform that reduced institutional trading costs, lowered the cost of raising capital. Using a difference-in-differences framework relative to the NYSE and that exploits the OHR's staggered implementation, we find that the OHR reduced the underpricing of seasoned equity offerings by one to two percentage points compared to a pre-OHR average of 3.6 percent. The effect is largest in stocks with the largest reduction in institutional trading costs after the OHR.
Keywords: Liquidity, Capital Costs, Seasoned Equity Offerings
JEL Classification: G10, G12, G14, G32
Suggested Citation: Suggested Citation