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How Issue Size, Risk, and Complexity are Influencing External Financing Costs: German IPOs Analyzed from an Economies of Scale Perspective

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  • Christoph Kaserer
  • Marcus Kraft

Abstract

This paper is focused on the cost of raising capital in Germany. A cross-sectional analysis of flotation cost data for 117 IPOs over the years 1993-1998 is presented. We find average flotation costs to be 7.77 percent of gross proceeds, while underwriting fees average 5.01 percent. Our results extend the literature in two important directions. First, contrary to the conventional economies of scale view we find marginal spreads to be rather constant in gross proceeds and to be higher for more risky and more complex offerings. Fixed costs amount to 5 to 9 percent of underwriting fees. Second, by applying a principal component analysis we find issue size, an issuer risk factor, and an offering method complexity factor to have an economicaly meaningful impact on underwriting fees. Copyright Blackwell Publishers Ltd, 2002.

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Bibliographic Info

Article provided by Wiley Blackwell in its journal Journal of Business Finance & Accounting.

Volume (Year): 30 (2003-04)
Issue (Month): 3-4 ()
Pages: 479-512

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Handle: RePEc:bla:jbfnac:v:30:y:2003-04:i:3-4:p:479-512

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Web page: http://www.blackwellpublishing.com/journal.asp?ref=0306-686X

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Cited by:
  1. Ranajit Kumar Bairagi & William Dimovski, 2010. "The underpricing of US REIT IPOs: 1996--2010," Journal of Property Research, Taylor & Francis Journals, vol. 28(3), pages 233-248, December.
  2. Christoph Kaserer & Alfred Mettler & Stefan Obernberger, 2011. "The Impact of the Sarbanes-Oxley Act on the Cost of Going Public," BuR - Business Research, German Academic Association for Business Research, vol. 4(2), pages 125-147, December.
  3. Franzke, Stefanie A. & Grohs, Stefanie & Laux, Christian, 2003. "Initial public offerings and venture capital in Germany," CFS Working Paper Series 2003/26, Center for Financial Studies (CFS).
  4. Lin, Justin Yifu & Sun, Xifang & Jiang, Ye, 2009. "Toward a theory of optimal financial structure," Policy Research Working Paper Series 5038, The World Bank.

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