The DOI matches its Crossref record; 3 of the 3 references it cites were found in a registry or an index.
Analyst Coverage and the Cost of Raising Equity Capital: Evidence from Underpricing of Seasoned Equity Offerings*
Abstract
There is limited direct evidence on the impact of analyst coverage on the cost of capital. In this paper, we hypothesize that the amount and nature of analyst coverage can reduce information asymmetry among investors and thus lower the cost of raising equity capital. We investigate the effect of analyst coverage on the underpricing of seasoned equity offerings (SEOs), which is a substantial cost of issuing new shares. Based on 4,766 SEOs in the period 1984-2000, our results suggest that more analyst coverage is associated with lower SEO underpricing. Compared with firms without analyst coverage, firms with the median level of analyst coverage - three analysts - have a 1.19% lower SEO underpricing, a relative decrease of 38%. This effect is robust to controlling for other factors affecting SEO underpricing. We also examine additional attributes of analyst coverage and find that firms followed by analysts working for the lead underwriter, with a reputation for superior ability, or with lower forecast dispersion have incrementally lower SEO underpricing.
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Cites
Corporate financing and investment decisions when firms have information that investors do not have
Myers, S. C., & Majluf, N. S. (1984) · Journal of Financial Economics · doi:10.1016/0304-405x(84)90023-0 · Cited by 18,957
Regression Diagnostics: Identifying Influential Data and Sources of Collinearity
Belsley, D. A., Kuh, E., & Welsch, R. E. (1980) · Wiley Series in Probability and Statistics · doi:10.1002/0471725153 · Cited by 7,297
Disclosure, Liquidity, and the Cost of Capital
DIAMOND, D. W., & VERRECCHIA, R. E. (1991) · The Journal of Finance · doi:10.1111/j.1540-6261.1991.tb04620.x · Cited by 3,836
Cited by
Does corporate social responsibility affect the cost of capital?
El Ghoul, S., Guedhami, O., Kwok, C. C. Y., & Mishra, D. R. (2011) · Journal of Banking & Finance · doi:10.1016/j.jbankfin.2011.02.007 · Cited by 3,465
Metadata
- Authors
- Bowen, R. M., Chen, X., & Cheng, Q.
- Venue
- Contemporary Accounting Research
- Publisher
- Wiley
- Published
- 2008-09
- Volume
- 25
- Issue
- 3
- Pages
- 657-700
- ISSN
- 0823-9150 (ISSN-L)
- 1911-3846
- OpenAlex
- W3121647716
- Cited by
- 307
- References
- 3
- FWCI
- 31.81
- Type
- journal article
- Language
- en
- Open access
- closed
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- Bowen, R. M., Chen, X., & Cheng, Q. (2008). Analyst Coverage and the Cost of Raising Equity Capital: Evidence from Underpricing of Seasoned Equity Offerings*. Contemporary Accounting Research. https://doi.org/10.1506/car.25.3.1
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