وظیفه مکانیسم صدور گواهینامه داخلی و خارجی در ارائه سهام فصلی

ABSTRACT The role of internal and external certification mechanisms in seasoned equity offerings

Extant research supports the view that corporate financing policy is strongly influenced by agency problems and information asymmetry arising from the separation of ownership and operational control of a firm (Jensen and Meckling, 1976; Myers and Majluf, 1984). Mande et al. (2012) investigate whether corporate governance quality affects a firm’s choice between debt and equity financing. For a sample of more than 2000 US debt and equity offers, they find that firms with more effective corporate governance are more likely to issue equity, suggesting that effective governance reduces the higher (compared with debt) agency cost of equity financing. Moreover, they find that the positive relation between governance and the probability of equity financing is more pronounced when there is higher information asymmetry between an issuer and outside investors. Echoing Mande et al. (2012), Dutordoir et al. (2014) find that corporate governance quality is a significant determinant of Western European issuers’ financing choice among convertible debt, straight debt, and equity. In particular, issuers with weaker governance are more likely to issue convertible debt. In this paper, our first motivation is to examine whether corporate governance quality influences issuers’ choice between shelf and non-shelf offering and between accelerated and non-accelerated offering. A shelf registration allows an eligible firm to issue its securities whenever it chooses to do so within two years of the registration without seeking further regulatory approval. An accelerated offering enables an issuer to complete an offering within one to two days. Given the much-shorter time frame for underwriters and investors to conduct their due diligence for shelf or accelerated offerings, we expect more severe agency problems and higher information asymmetry among an issuer, its underwriter(s), and investors for such offerings. Therefore, we posit that an issuer with better corporate governance quality may be more likely to conduct a shelf or accelerated offering, because the benefit of good governance in reducing the costs of agency problems and information asymmetry is particularly higher (Mande et al., 2012; Dutordoir et al., 2014). Using a sample of US equity offerings over the period of 2001 through 2007, we find evidence supporting such an argument.

In the context of equity issuance, shelf registered offerings have lower issuance costs than traditionally registered offerings (Bhagat et al., 1985; Autore et al., 2008). Yet in the past the majority of issuers chose the traditional offerings over shelf registration when issuing equity (Denis, 1991; Autore et al., 2008). This preference for a relatively expensive method of equity issuance has been attributed to the problem of under-certification faced by shelf issuers. The under-certification problem arises due to the short time period between the announcement and the issuance of equity in shelf offers that precludes adequate due diligence by underwriters. Autore et al. (2008) suggest that issuers choose shelf registration only when they are partially certified by mechanisms other than underwriter due diligence. Autore et al. (2008) identify two of such mechanisms: conducting shelf offering after the issuer has made several SEOs before and hence the issuer has been certified during those SEOs prior to the shelf offering; conducting shelf offerings after smaller stock price runups to signal to investors that the issuer is not selling overvalued equity. Turning to the choice between accelerated and non-accelerated offerings, Gao and Ritter (2010) find that issuers with less elastic demand curve for their stocks tend to conduct a non-accelerated offering (that is, fully marketed offering with traditional book building and road show) in which underwriters are hired to create demand (that is, flatten the demand curve).

Issuers with more elastic demand curve should therefore prefer to conduct an accelerated offering, which reduces the time taken to issue new securities and lowers the flotation costs. However, the accelerated offering method also suffers from the same drawback of limited due diligence time for underwriters. Thus, given the risky nature of the accelerated offer method, it makes sense for underwriters to ensure that a certification device is in place before accepting a deal in order to protect their reputation and lower their litigation risk. The second motivation of our paper is to examine whether a firm’s internal corporate governance arrangement could serve as a potential certification device for a shelf or an accelerated offering. We expect that firms with high quality internal governance mechanisms may require less external certification via underwriters. Given the lower issuance costs of shelf or accelerated offerings as compared to non-shelf or non-accelerated offerings, we posit that firms with better governance quality are more likely to choose shelf (accelerated) offerings over non-shelf (non-accelerated) offerings. Our empirical evidence is consistent with such a view.

In addition to the choice of issuance methods, the issuance cost is also an important aspect of the SEO process. Lee and Masulis (2009) conduct a thorough investigation of SEOs’ flotation costs and link an issuer’s flotation costs to the quality of the issuer’s accounting information. They argue that poor accounting information increases the uncertainty in an issuer’s financial condition, decreases the demand for the issuer’s stocks, and hence increases its issuance costs. Using a sample of US SEOs over the period of 1990–2002, Lee and Masulis (2009) find that the gross spread of an SEO is significantly negatively related to the quality of the issuer’s accounting information, which is measured by the reliability of the accruals component of the issuer’s accounting earnings. The third motivation of this paper is to examine whether the costs that an issuer is willing to pay to purchase external auditing service serve as an external certification of the quality of its accounting information.

Auditors are a vital player in the SEO process. Underwriters and investors entrust the completeness and the accuracy of the financial information of an issuer to auditors. Therefore, to the extent that better quality auditing work incurs higher auditing fees, we expect that issuers paying higher audit fees to purchase more stringent auditing have lower issuance costs. Indeed, our empirical test indicates that the gross spread of an issuer is significantly negatively associated with its audit fees.

This paper makes several contributions to the literatures on securities issuance and corporate governance. First, the paper contributes to the burgeoning strand of literature on how corporate governance affects firms’ financing choices by extending the influence of governance from the choice between debt and equity (Mande et al., 2012) and the choice between convertible debt, straight debt, and equity (Dutordoir et al., 2014) to the choice between shelf and non-shelf and between accelerated and non-accelerated offerings. Second, the paper complements Autore et al. (2008) and Gao and Ritter (2010) and contributes to the literature on shelf and accelerated offerings by identifying another alternative (to underwriter certification) certification mechanism. Finally, the paper complements Lee and Masulis (2009) and adds to the literature on flotation costs by highlighting the role of audit fees as an external certification device.

Although we study a sample of US SEOs, the findings have implications also for firms operating in other countries. Pandes (2010), for example, reports that accelerated offerings, called bought deals, dominate Canadian SEOs. Over its sample period of 1993 through 2005, 72% of the SEOs in its sample are bought deals and they account for about 57% of the total proceeds raised by all the SEOs. Echoing Pandes (2010), Gunay and Ursel (2015) report that approximately 64% of all the SEOs executed in Canada over 1993–2013 are accelerated SEOs. In addition, Bortolotti et al. (2008) document a global convergence of SEO methods toward accelerated offerings. In their sample of 31,242 SEOs from almost 100 countries conducted over 1991–2004, around 16% involve accelerated offerings. Our findings suggest that, in countries where accelerated offerings are allowed, establishing sound corporate governance practices or acquiring high-quality auditing services can be effective ways to certify the quality of equity offerings when firms raise capital through accelerated offerings. The remainder of the paper is organized as follows. In the next section, we provide the theoretical underpinnings for our empirical tests and develop the hypotheses. In Section 3, we describe the data sources, our sample selection procedures, and the characteristics of our sample. In Section 4, we report the empirical results and discuss their implications. Our concluding comments are presented in Section 5.