Underwriting Fees and Shareholder Rights
Journal of Business Finance and Accounting, Forthcoming
Posted: 17 Feb 2013
Date Written: February 16, 2013
Do firms’ governance provisions affect their terms of obtaining external financing? We hypothesize that it is more difficult for firms with more restrictions on shareholder rights to raise external equity, and that since analyst coverage is an important part of underwriting services, underwriters would use analyst recommendations to promote issuing firms with weaker shareholder rights more and charge them higher underwriting fees. Consistent with our hypothesis, we find that analyst recommendations on issuing firms with weak shareholder rights increase more than those with strong shareholder rights prior to SEOs, and that underwriting spreads are positively related to issuing firms’ shareholder rights as proxied by the G-index. Furthermore, consistent with Bebchuk et al. (2009), the effect of shareholder rights on underwriting fees is largely contained in the six provisions in the E-index.
Keywords: Shareholder Rights, Analyst Coverage, SEOs, Gross Spreads
JEL Classification: G32, G24
Suggested Citation: Suggested Citation