Journal of Financial Stability Vol. 53 2021
How economic policy uncertainty affects the cost of raising equity capital: Evidence from seasoned equity offerings
open access
Abstract
Economic policy uncertainty (EPU) increases the cost of raising equity capital, especially when the economy is weak. A one standard deviation increase in the EPU index developed by Baker, Bloom, and Davis (2016) is associated with a 43 basis point increase in the price discount of seasoned equity offerings (SEOs) during the 2000−2014 period. The cross-sectional analysis shows that the EPU effect on SEO discounts is stronger for firms with greater dependence on government spending, less informative stock price, or a smaller EPU beta. Moreover, there are fewer SEO activities in periods when there is a high degree of policy uncertainty.
- DOI
- 10.1016/j.jfs.2020.100841
- Volume
- 53
- Pages
- 100841
- Language
- en
- Sources
- bibtex:phds-export.bib openalex crossref