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Journal of Financial and Quantitative Analysis Vol. 56 No. 5 2021

Does Financial Market Structure Affect the Cost of Raising Capital?

James Brugler1; Carole Comerton-Forde; Terrence Hendershott2

1 The University of Melbourne · 2 University of California, Berkeley

open access

Abstract

We provide evidence on market structure and the cost of raising capital by examining changes in market structure in U.S. equity markets. Only the Order Handling Rules (OHR) of the Nasdaq, the one reform that reduced institutional trading costs, lowered the cost of raising capital. Using a difference-in-differences framework relative to the New York Stock Exchange (NYSE) that exploits the OHR’s staggered implementation, we find that the OHR reduced the underpricing of seasoned equity offerings by 1–2 percentage points compared with a pre-OHR average of 3.6%. The effect is the largest in stocks with the largest reduction in institutional trading costs after the OHR.

DOI
10.1017/s0022109020000381
Volume
56
Issue
5
Pages
1771-1808
Language
en
Sources
openalex crossref bibtex:phds-export.bib

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