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On the Determinants of Underwriting in Swedish Equity Offerings

Lundborg Regnér, Martin LU and Tedroff, Carl Johan LU (2017) NEKP03 20171
Department of Economics
Abstract
This thesis studies the choice of floatation method using a dataset based on 703 public offerings in Sweden between 2006 and 2017. A logistic model is utilised to study the determinants of underwriting, an ordinary least square model to estimate the direct cost of floatation, and the cost of underwriting is estimated using the Heckman sample selection model. The results are generally aligned with existing research and suggest that underwriters are providers of signalling in equity offerings, but are for our sample to be considered imperfect in providing certification. In contrast to existing beliefs of shareholder takeup, the likelihood of underwriting is increasing in expected shareholder takeup from subscription precommitments. Our... (More)
This thesis studies the choice of floatation method using a dataset based on 703 public offerings in Sweden between 2006 and 2017. A logistic model is utilised to study the determinants of underwriting, an ordinary least square model to estimate the direct cost of floatation, and the cost of underwriting is estimated using the Heckman sample selection model. The results are generally aligned with existing research and suggest that underwriters are providers of signalling in equity offerings, but are for our sample to be considered imperfect in providing certification. In contrast to existing beliefs of shareholder takeup, the likelihood of underwriting is increasing in expected shareholder takeup from subscription precommitments. Our explanation for this is bilateral. On the one side, we argue that risk averse firms can ensure successful offerings by using a combination of subscription precommitments and underwriting. On the other side, we reason that high subscription precommitments indicate concentrations of large shareholders. Accordingly, we propose that underwriting in these equity offerings may be a result of agency problems between shareholders. Furthermore, a rights issue paradox is insinuated in the Swedish equity market. However, we limit our inference to mere indications as opposed to definite conclusions, and emphasise that an estimation of the indirect costs is needed to assert the presence of such paradox. Finally, we find that there are economies of scale of underwriting and that the cost of underwriting is decreasing in the insured share in the equity offering. (Less)
Popular Abstract
This thesis studies the choice of floatation method using a dataset based on 703 public offerings in Sweden between 2006 and 2017. A logistic model is utilised to study the determinants of underwriting, an ordinary least square model to estimate the direct cost of floatation, and the cost of underwriting is estimated using the Heckman sample selection model. The results are generally aligned with existing research and suggest that underwriters are providers of signalling in equity offerings, but are for our sample to be considered imperfect in providing certification. In contrast to existing beliefs of shareholder takeup, the likelihood of underwriting is increasing in expected shareholder takeup from subscription precommitments. Our... (More)
This thesis studies the choice of floatation method using a dataset based on 703 public offerings in Sweden between 2006 and 2017. A logistic model is utilised to study the determinants of underwriting, an ordinary least square model to estimate the direct cost of floatation, and the cost of underwriting is estimated using the Heckman sample selection model. The results are generally aligned with existing research and suggest that underwriters are providers of signalling in equity offerings, but are for our sample to be considered imperfect in providing certification. In contrast to existing beliefs of shareholder takeup, the likelihood of underwriting is increasing in expected shareholder takeup from subscription precommitments. Our explanation for this is bilateral. On the one side, we argue that risk averse firms can ensure successful offerings by using a combination of subscription precommitments and underwriting. On the other side, we reason that high subscription precommitments indicate concentrations of large shareholders. Accordingly, we propose that underwriting in these equity offerings may be a result of agency problems between shareholders. Furthermore, a rights issue paradox is insinuated in the Swedish equity market. However, we limit our inference to mere indications as opposed to definite conclusions, and emphasise that an estimation of the indirect costs is needed to assert the presence of such paradox. Finally, we find that there are economies of scale of underwriting and that the cost of underwriting is decreasing in the insured share in the equity offering. (Less)
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author
Lundborg Regnér, Martin LU and Tedroff, Carl Johan LU
supervisor
organization
course
NEKP03 20171
year
type
H2 - Master's Degree (Two Years)
subject
language
English
id
8926001
date added to LUP
2017-09-20 08:56:14
date last changed
2017-09-20 08:56:14
@misc{8926001,
  abstract     = {This thesis studies the choice of floatation method using a dataset based on 703 public offerings in Sweden between 2006 and 2017. A logistic model is utilised to study the determinants of underwriting, an ordinary least square model to estimate the direct cost of floatation, and the cost of underwriting is estimated using the Heckman sample selection model. The results are generally aligned with existing research and suggest that underwriters are providers of signalling in equity offerings, but are for our sample to be considered imperfect in providing certification. In contrast to existing beliefs of shareholder takeup, the likelihood of underwriting is increasing in expected shareholder takeup from subscription precommitments. Our explanation for this is bilateral. On the one side, we argue that risk averse firms can ensure successful offerings by using a combination of subscription precommitments and underwriting. On the other side, we reason that high subscription precommitments indicate concentrations of large shareholders. Accordingly, we propose that underwriting in these equity offerings may be a result of agency problems between shareholders. Furthermore, a rights issue paradox is insinuated in the Swedish equity market. However, we limit our inference to mere indications as opposed to definite conclusions, and emphasise that an estimation of the indirect costs is needed to assert the presence of such paradox. Finally, we find that there are economies of scale of underwriting and that the cost of underwriting is decreasing in the insured share in the equity offering.},
  author       = {Lundborg Regnér, Martin and Tedroff, Carl Johan},
  language     = {eng},
  note         = {Student Paper},
  title        = {On the Determinants of Underwriting in Swedish Equity Offerings},
  year         = {2017},
}