Does Financial Market Structure Impact the Cost of Raising Capital?

61 Pages Posted: 21 Nov 2017 Last revised: 5 Feb 2020

See all articles by James Brugler

James Brugler

University of Melbourne - Department of Finance

Carole Comerton-Forde

UNSW Business School; Financial Research Network (FIRN)

Terrence Hendershott

University of California, Berkeley - Haas School of Business

Date Written: February 3, 2020

Abstract

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

Brugler, James and Comerton-Forde, Carole and Hendershott, Terrence J., Does Financial Market Structure Impact the Cost of Raising Capital? (February 3, 2020). Available at SSRN: https://ssrn.com/abstract=3074097 or http://dx.doi.org/10.2139/ssrn.3074097

James Brugler

University of Melbourne - Department of Finance ( email )

Faculty of Business and Economics
Parkville, Victoria 3010 3010
Australia

Carole Comerton-Forde

UNSW Business School ( email )

UNSW Business School
High St
Sydney, NSW 2052
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Terrence J. Hendershott (Contact Author)

University of California, Berkeley - Haas School of Business ( email )

545 Student Services Building, #1900
2220 Piedmont Avenue
Berkeley, CA 94720
United States

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