Outline

  • Abstract
  • Jel Classification
  • Keywords
  • 1. Introduction
  • 2. Theoretical Underpinnings
  • 2.1. Shelf Registration, Underwriter Certification, and Internal Certification Via Corporate Governance
  • 2.2. Accelerated Offers, Heightened Risks, and Internal Certification Via Governance
  • 2.3. Flotation Costs and External Certification Via Audit Fees
  • 3. Data, Sample, and Measures of Governance Quality
  • 3.1. Data and Sample
  • 3.2. Firm Level Corporate Governance Quality
  • 3.3. Sample Characteristics
  • 4. Empirical Results
  • 4.1. Preliminary Results
  • 4.2. Regression Results
  • 4.2.1. Choice of Issuance Methods and the Strength of Certification Via Governance
  • 4.2.2. Issue Costs and the Strength of Certification Via Auditors
  • 4.3. Further Discussions on Certification Mechanisms
  • 5. Conclusions
  • Acknowledgments
  • Appendix A. Governance Rating Variables Summary
  • References

رئوس مطالب

  • چکیده
  • 1. مقدمه
  • 2. بنیان های نظری
  • 2.1. ثبت نام شلف، تصدیق پذیره نویس، و تصدیق داخلی از طریق حاکمبت شرکتی
  • 2.2. عرضه های تسریعی، تشدید ریسک ها، و تصدیق داخلی از طریق حاکمیت
  • 2.3. هزینه های شناور و تصدیق خارجی از طریق حق الزحمه های حسابداری
  • . داده ها، نمونه، و معیارهای اندازه گیری کیفیت حاکمیت
  • 3.1. داده ها و نمونه
  • 3.2. کیفیت حاکمیت شرکتی در سطح شرکت
  • 3.3. خصوصیات نمونه
  • 4. نتایج تجربی
  • 4.1. نتایج اولیه
  • 4.2. نتایج رگرسیون
  • 4.2.1. انتخاب روش صدور و قدرت تصدیق از طریق حاکمیت
  • 4.2.2. هزینه های صدور و قدرت تصدیق از طریق حسابرسان
  • 4.3. بحث بیشتر در مورد مکانیسم تصدیق
  • 5. نتیجه گیری

Abstract

When conducting their seasoned equity offerings (SEOs), US firms have been increasingly relying on shelf offering or accelerated offering rather than non-shelf offering or traditional book building, the predominant issuance methods in the past. Previous studies find that the unpopularity of shelf or accelerated offering in the past is due to the under-certification problem. Therefore, the change in firms’ preferred issuance methods suggests that firms must have obtained adequate certification through various ways. In this paper, we study several potential internal and external certification mechanisms that issuers can utilize and explore their roles in the SEO process. We find that the internal certification via sound corporate governance affects firms’ choice of the issuance method between shelf (accelerated) and nonshelf (non-accelerated) offerings, while the external certification through acquiring high-quality auditing services impacts the issuance costs.

Keywords: - - - -

Conclusions

SEC began to introduce shelf registration in 1982. Although shelf registration allows issuers much more flexibility in their securities issue process and seems to have lower issue costs, few firms used shelf registration during the 1980s. Yet the 1990s sees a dramatic revival of the use of shelf registration. Another offering method, accelerated offering has also been gaining popularity since 2000. The main obstacle that discouraged issuers from utilizing shelf or accelerated offerings in the past is the under-certification by underwriters resulting from inadequate due diligence. The significant increase in the use of shelf registration and accelerated offering suggests that issuers must have found a way to overcome the under-certification problem. Giving the fact that firms have been paying increasing attention to corporate governance over the last two decades and given the effectiveness of sound governance in reducing agency costs and information asymmetry, we hypothesize that internal corporate governance may serve as an alternative certification device and allow issuers with strong governance to overcome the under-certification problem and take advantage of shelf and accelerated offerings.

Using a panel dataset of US SEOs, we find evidence that supports our conjecture. In particular, firms with better internal governance quality are more likely to use shelf registration or accelerated offering. Motivated by the finding in Lee and Masulis (2009) that issuance costs are negatively related to the quality of accounting information for an issuer and the extensive evidence that the magnitude of audit fees may measure the strength of financial statement verification, we postulate that SEO issuers may use the amount of audit fees paid to credibly signal the quality of their financial disclosure to underwriters and investors and in return enjoy lower issuance costs. Our empirical tests find that gross spreads are indeed significantly negatively associated with audit fees, and hence support the argument that the external certification by auditors affects issue costs.

In sum, our paper contributes to the securities issuance, the corporate governance, and the auditing literature by proposing a linkage between governance quality and the choice of securities issue techniques and between the amount of resources spent by an issuer on acquiring auditing services and its issue costs and providing empirical evidence that supports the existence of the linkages.

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