The Economic Consequences of Corporate Capital Acquisition Decisions and Government Legislation

• Main Author: Gustafson, Matthew
• Format: Dissertation
• Language: English
• Published: ProQuest Dissertations & Theses 01.01.2013
• Subjects: Capital markets; Commercial banks; Cost control; Credit ratings; Due diligence; Employees; Equity; Finance; Hypotheses; Hypothesis testing; Initial public offerings; Investments; Legislation; Market timing; Marketing; Prices; Rates of return; Regulated industries; Retirement plans; Securities offerings; Shelf registration; Statistics; Stock offerings; Stock prices; Underwriting
• ISBN: 9781303504815; 1303504812

In chapter 1, I explore the consequences of accelerating the sale of seasoned equity offerings (SEOs). Since 2001 the median number of days between the announcement and issuance of SEOs has dropped from approximately a calendar month to a single day. In contrast to descriptive evidence and the existing literature, my selection model counterfactuals indicate that accelerating SEOs increases underwriter expenses by approximately $1.1 million. Specifically, acceleration causes a $1.4 million (or thirty-three percent) increase in SEO underpricing, which a $300,000 underwriter spread savings partially offsets. Next I show that accelerating an SEO increases proceeds by over $4 million by allowing issuers to avoid the pre-issuance price declines associated with non-accelerated offerings. These findings provide new evidence on both how issuers benefit from accelerated SEOs and the value of an extended SEO underwriting process. Chapter 2 uses a natural experiment to investigate how wealth loss affects retirement. I exploit a 1984 federal government retirement system shift to defined contribution (DC) pensions that quasi-randomly exposes retirement income to the financial markets. This added exposure causes an employee making $100,000 per year to lose 2.4 percent or $25,000 of retirement income during the financial crisis. This moderate level of DC exposure causes retirement age federal employees to delay retirement approximately 30 percent longer during the first year of the crisis. The treatment effect is concentrated in high-income employees for whom the treatment is largest. Within this subsample, the DC treatment causes employees planning to retire anytime between October 2008 and July 2011 to delay retirement by an average of 2 months. Chapters 3 and 4 examine how competition affects the cost of capital acquisition. Chapter 3 provides evidence that access to the public debt markets can reduce the cost of bank loans, but only if the bank loan is substitutable with public debt. Specifically, having an active shelf registration is associated with lower bank loan spreads only for long maturity term loans. I argue and provide evidence that this finding is not driven by these firms being of unobservably high quality; however I cannot completely rule out this alternative. Chapter 4 reexamines how the relaxation of the Glass Steagall Act affected the cost of debt in the context of the concurrent shift towards shelf registered debt offerings. I find that increased underwriter competition only affects the cost of non-shelf registered debt offerings. This is consistent with previous literature arguing that the shelf registered debt market is competitive.