Shelf Registered Securities: Is it Time to Re-Evaluate the Process?

Posted: 10 Feb 2004

See all articles by Stephen R. Moehrle

Stephen R. Moehrle

University of Missouri at Saint Louis - Accounting Area

Jennifer A. Reynolds-Moehrle

University of Missouri at Saint Louis - Accounting Area

Pamela S. Stuerke

University of Rhode Island

Abstract

Firms that meet certain criteria can register debt or equity securities for issuance any time during the subsequent two years. This process is known as shelf registration. Key shelf registration qualification criteria include $75 million market capitalization held by outsiders, timely SEC filings, investment-grade ratings of debt, no defaults on debt payments, and listing on national stock exchanges. During the last few years, several visible companies have suffered quick financial collapses. Many of these companies had debt securities available for issuance from the shelf at the time of collapse. In this study, we examine shelf registrants to address whether shelf registrants of debt, on average, are riskier firms than those that do not have shelf registrations. Using various measures of risk, we assess the risk profiles of shelf registrants versus non-shelf registrants. We find that shelf registrant firms are more highly leveraged, slightly less profitable, and have greater bankruptcy probability than non-shelf registrant firms. Collectively, these findings raise concerns about the overall safety of shelf registrations, and suggest the need for regulators to reconsider the appropriate qualifications for shelf registration. The findings also suggest that investors and analysts should beware of the additional risk posed by the average firm that has shelf-registered debt securities.

Keywords: Shelf registration, financial risk, regulation

JEL Classification: K22, G33, G32

Suggested Citation

Moehrle, Stephen R. and Reynolds-Moehrle, Jennifer A. and Stuerke, Pamela S., Shelf Registered Securities: Is it Time to Re-Evaluate the Process?. Available at SSRN: https://ssrn.com/abstract=498403

Stephen R. Moehrle (Contact Author)

University of Missouri at Saint Louis - Accounting Area ( email )

8001 Natural Bridge Road
St. Louis, MO 63121
United States
314-516-6142 (Phone)
314-516-6420 (Fax)

Jennifer A. Reynolds-Moehrle

University of Missouri at Saint Louis - Accounting Area ( email )

8001 Natural Bridge Road
St. Louis, MO 63121
United States
314-516-6764 (Phone)
314-516-6420 (Fax)

Pamela S. Stuerke

University of Rhode Island ( email )

Kingston, RI 02881
United States

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