We examine share-price reactions of commercial bank common stock issues and find negative effects on rival commercial and investment banking firms. In comparison, we find no such intra-industry effects for equity issues by industrial firms. Our results support theoretical models in which bank loan portfolios impound asymmetric information about client firms, so that adverse individual bank announcements generate external information effects on other banks. A policy implication of these results is that regulatory pressures applied to individual banks induce spillover costs for the commercial and investment banking industries. Our evidence also indicates that the legal separation of commercial and investment banking activities is artificial.

We develop an analytical framework to explain firm's choice of equity flotation method and the near disappearance of rights offers by U.S. exchange-listed firms. The choice between uninsured rights, rights with standby underwriting, and firm-commitment underwriting depends on information asymmetries, shareholder characteristics, and direct flotation costs. Underwriter certification and current-shareholder takeup are viewed as substitute mechanisms for minimizing wealth transfers between shareholders and outside investors. Uninsured rights create adverse-selection effects when shareholder takeup is low. Implications for stock-price behavior around issue announcements, shareholder subscription precommitments, and relative issue frequencies are supported by large-sample evidence.