Does Financial Market Structure Impact the Cost of Raising Capital?
AuthorBrugler, J; Comerton-Forde, C; Hendershott, T
Source TitleJournal of Financial and Quantitative Analysis
PublisherCambridge University Press (CUP)
Document TypeJournal Article
CitationsBrugler, J., Comerton-Forde, C. & Hendershott, T. (2020). Does Financial Market Structure Impact the Cost of Raising Capital?. Journal of Financial and Quantitative Analysis, Forthcoming, pp.1-38. https://doi.org/10.1017/S0022109020000381.
Access StatusOpen Access
<jats:title>Abstract</jats:title> <jats:p>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.</jats:p>
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