Firms' Access to External Capital Markets

This thesis examines external forces that impact firms' willingness and ability to raise external funds in the capital markets. Chapter 1 introduces the research topics that the thesis addresses and briefly outlines their findings. Chapter 2 examines a regulation that was designed to increase the number of private firms choosing to go public in the United States, but which actually resulted in fewer firms completing initial public offerings. Specifically, the Jumpstart Our Business Startups Act was enacted to reduce the costs of going public for small firms by reducing the amount of required disclosure and allowing these firms to test the waters before filing public documents. This Chapter argues that these changes exacerbated information asymmetry in favour of firms over investors, discouraging all but the best firms from going public. Chapter 3 examines the impact of passive investors on firms' bond issuance decisions. This Chapter hypothesizes that firms take advantage of the presence of passive demand by issuing index-eligible bonds with features that favour firms. It shows empirically that firms care whether their bonds are index-eligible, and that as the level of passive demand increases, firms are more likely to issue bonds and the bonds they issue are larger and have lower spreads. By focusing on changes in index thresholds, the Chapter then shows that while bonds become larger, bond issuance decreases, consistent with some firms `reaching' to be included in the index while other firms opt out of the bond market. Chapter 4 examines two forms of seasoned equity offerings, which differ in terms of risk taken by financial intermediaries. Specifically, the Chapter compares bought deals, where underwriters buy shares from an issuer at a fixed price and then find buyers or risk holding the shares as inventory, to marketed deals, where underwriters build a book of interested buyers but do not take on any price or inventory risk. This Chapter examines why underwriters choose one form of intermediation over the other, and how bought deals change the way surplus is divided among firms, investors and underwriters and can result in inefficient seasoned equity offerings.Ph.D