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Costs of capital and public issuance choice

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  • Lamoureux, Christopher G.
  • Nejadmalayeri, Ali

Abstract

The choices of firms raising external capital conform to standard static choice theory in that the higher the (relative) cost of an alternative—both at the overall market level and at the firm level—the less attractive is that alternative. Price elasticities of demand are smaller for more profitable and tangible firms, and larger for larger and more liquid firms. Firm fixed effects account for one-third of the explained choice variation of multiple issuers. Short-term debt is more attractive when the yield curve is steeply sloped, but the demand for equity is inelastic with respect to the market price-earnings multiple.

Suggested Citation

  • Lamoureux, Christopher G. & Nejadmalayeri, Ali, 2015. "Costs of capital and public issuance choice," Journal of Banking & Finance, Elsevier, vol. 61(C), pages 27-45.
    • Handle: RePEc:eee:jbfina:v:61:y:2015:i:c:p:27-45
    DOI: 10.1016/j.jbankfin.2015.08.028
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    1. Wang, Zhimin & Ettinger, Marilyn & Xie, Yuying & Xu, Li, 2020. "The cost of capital: U.S.-based multinational corporations versus U.S. domestic corporations," Global Finance Journal, Elsevier, vol. 44(C).

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    More about this item

    Keywords

    Market conditions; External financing choice; Hierarchical multinomial probit;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • L20 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - General
    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • C35 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions

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