Does Financial Market Structure Affect the Cost of Raising Capital?

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    Author
    Brugler, J; Comerton-Forde, C; Hendershott, T
    Date
    2021-08-01
    Source Title
    Journal of Financial and Quantitative Analysis
    Publisher
    CAMBRIDGE UNIV PRESS
    University of Melbourne Author/s
    Brugler, James; Comerton-Forde, Carole
    Affiliation
    Finance
    Metadata
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    Document Type
    Journal Article
    Citations
    Brugler, J., Comerton-Forde, C. & Hendershott, T. (2021). Does Financial Market Structure Affect the Cost of Raising Capital?. JOURNAL OF FINANCIAL AND QUANTITATIVE ANALYSIS, 56 (5), pp.1771-1808. https://doi.org/10.1017/S0022109020000381.
    Access Status
    Open Access
    URI
    http://hdl.handle.net/11343/258560
    DOI
    10.1017/S0022109020000381
    Abstract
    Abstract We provide evidence on market structure and the cost of raising capital by examining changes in market structure in U.S. equity markets. Only the Order Handling Rules (OHR) of the Nasdaq, the one reform that reduced institutional trading costs, lowered the cost of raising capital. Using a difference-in-differences framework relative to the New York Stock Exchange (NYSE) that exploits the OHR’s staggered implementation, we find that the OHR reduced the underpricing of seasoned equity offerings by 1–2 percentage points compared with a pre-OHR average of 3.6%. The effect is the largest in stocks with the largest reduction in institutional trading costs after the OHR.

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