Direct Equity Financing: A Resolution of a Paradox

  • Author(s): ROBERT S. HANSEN, JOHN M. PINKERTON
  • Published: Apr 30, 2012
  • Pages: 651-665
  • DOI: 10.1111/j.1540-6261.1982.tb02215.x

ABSTRACT

When raising new equity capital managers have historically rejected the direct offer method favoring instead the seemingly more expensive underwritten public issue. This paper provides a resolution for this equity financing paradox by demonstrating empirically that firms which engage in direct offers enjoy a comparative cost advantage that is more than sufficient to account for the absolute reported cost differences between the two methods of equity financing.

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