The Real Effects of Equity Issuance Frictions
Matthew Gustafson; Pennsylvania State University
Peter Iliev; Pennsylvania State University
March 2nd, 2015
ABSTRACT
We study the consequences of an exogenous deregulation allowing small firms to accelerate public equity issuance. Post-deregulation, firms double their reliance on public equity (both overall and compared to a control group), transition away from private investments in public equity, and increase their total annual equity issuance by 45%. This is accompanied by a 6.1 percentage point reduction in equity issuance costs, a 19% increase in investment, and a 12% decline in financial leverage. The effects are larger for growth firms and financially constrained firms. Our findings provide evidence that reducing issuance frictions benefits issuers even in highly developed markets.
Keywords: Issuance Frictions, Seasoned Equity Offerings, PIPEs, Capital Structure, Investment, Shelf Registrations.
JEL Classification: G32, G18.
