Sailing in rough water: market volatility and corporate finance

Book Title: NA
Year Published: 2004
Month Published: NOV
Author: Schill, MJ
Book Group Author: NA
Abstract:

This paper examines how market volatility affects corporate financing transactions. Firms face substantial uncertainty with respect to the price, demand, and after-market costs associated with raising public capital. The ability to effectively hedge this risk is critical to the efficient financing of firm capital needs. Using monthly US equity-related financing transactions from 1970 to 1998, 1 find that market volatility dampens financing transactions, particularly among small or unseasoned firms. Periods of above normal market volatility are associated with a significant 13% decline in the frequency of initial public offering (IPO) transactions and a 21% decline in the number of IPO dollars raised. Increased market volatility generates greater underwriting fees but does not affect IPO underpricing. The findings are most consistent with Mandelker and Raviv's [J. Finance 32 (1977) 683] model of costly distribution risk bearing., (C) 2003 Elsevier B.V. All rights reserved.

Pages: 659-681
URL: NA
Volume: 10
Number: 5
Journal: JOURNAL OF CORPORATE FINANCE
Journal ISO: J. Corp. Financ.
Organization: NA
Publisher: ELSEVIER SCIENCE BV
ISBN: NA
ISSN: 0929-1199
DOI: 10.1016/S0929-1199(03)00045-2
Keywords:

equity offerings; market volatility; underwriting; underpricing

Source: Web of Science
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