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The Costs Of Raising Capital


  • Inmoo Lee
  • Scott Lochhead
  • Jay Ritter
  • Quanshui Zhao


We report the average costs of raising external debt and equity capital for U.S. corporations from 1990 to 1994. For initial public offerings (IPOs) of equity, the direct costs average 11.0 percent of the proceeds. For seasoned equity offerings (SEOs), the direct costs average 7.1 percent. For convertible bonds, the direct costs average 3.8 percent. For straight debt issues, the direct costs average 2.2 percent, although they are strongly related to the credit rating of the issue. All classes of securities exhibit economies of scale, although they are less pronounced for straight debt issues. IPOs also incur a substantial indirect cost due to short‐run underpricing. Most large equity offers include an international tranche, although debt issues do not.

Suggested Citation

  • Inmoo Lee & Scott Lochhead & Jay Ritter & Quanshui Zhao, 1996. "The Costs Of Raising Capital," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 19(1), pages 59-74, March.
  • Handle: RePEc:bla:jfnres:v:19:y:1996:i:1:p:59-74
    DOI: 10.1111/j.1475-6803.1996.tb00584.x

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