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The Costs of Issuing Private Versus Public Equity


  • Cécile Carpentier
  • Jean-François L'Her
  • Jean-Marc Suret


Canadian listed firms issue private offerings more often than public offerings. Yet the issuing cost of private investments in public equity (PIPEs) has neither been analyzed nor compared with the cost of conventional seasoned equity offerings (SEOs). We examine a sample of 2,108 PIPEs and 1,990 SEOs completed between 1993 and 2003, and show that, as expected, PIPEs are discounted more than SEOs, although the commissions paid to investment bankers are lower. When we control for size and other characteristics of the issuers, the difference between the total costs is 4%. Although this figure is significant, if the PIPE process allows firms to obtain financing four or six months earlier than via SEOs, the price gap may be economically justifiable. This finding may explain the rapid growth of the Canadian PIPE market. Les sociétés canadiennes inscrites en Bourse se financent de plus en plus fréquemment par placement privé, les PIPES. Le coût de ce type d'émission n'a jamais été comparé à celui des émissions publiques subséquentes (SEO). Nous analysons un échantillon de 2018 PIPES et 1990 émissions publiques, effectuées entre 1993 et 2003. Nous montrons que l'escompte est supérieur dans le cas des PIPEs, ce qui correspond aux attentes, mais les commissions payées aux courtiers sont inférieures. Lorsque la taille et les autres caractéristiques des émissions sont prises en compte, la différence entre les deux catégories d'émissions est de l'ordre de 4 %. Cet écart est statistiquement significatif. Toutefois, dans la mesure où l'émission privée peut permettre à l'entreprise d'obtenir les fonds six mois plus tôt que l'appel public, il peut être économiquement justifié de supporter ce coût supplémentaire. Cette situation pourrait expliquer la croissance des émissions privées.

Suggested Citation

  • Cécile Carpentier & Jean-François L'Her & Jean-Marc Suret, 2005. "The Costs of Issuing Private Versus Public Equity," CIRANO Working Papers 2005s-14, CIRANO.
  • Handle: RePEc:cir:cirwor:2005s-14

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    References listed on IDEAS

    1. Wu, YiLin, 2004. "The choice of equity-selling mechanisms," Journal of Financial Economics, Elsevier, vol. 74(1), pages 93-119, October.
    2. Cécile Carpentier & Jean-Marc Suret, 2003. "The Canadian and American Financial Systems: Competition and Regulation," Canadian Public Policy, University of Toronto Press, vol. 29(4), pages 431-447, December.
    3. 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.
    4. James S. Ang & James C. Brau, 2002. "Firm Transparency and the Costs of Going Public," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 25(1), pages 1-17, March.
    5. Hoffmann-Burchardi, Ulrike, 2001. "Clustering of initial public offerings, information revelation and underpricing," European Economic Review, Elsevier, vol. 45(2), pages 353-383, February.
    6. Bayless, Mark & Chaplinsky, Susan, 1996. "Is There a Window of Opportunity for Seasoned Equity Issuance?," Journal of Finance, American Finance Association, vol. 51(1), pages 253-278, March.
    7. Helwege, Jean & Liang, Nellie, 2004. "Initial Public Offerings in Hot and Cold Markets," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 39(3), pages 541-569, September.
    8. Altinkilic, Oya & Hansen, Robert S., 2003. "Discounting and underpricing in seasoned equity offers," Journal of Financial Economics, Elsevier, vol. 69(2), pages 285-323, August.
    9. Hertzel, Michael G & Smith, Richard L, 1993. "Market Discounts and Shareholder Gains for Placing Equity Privately," Journal of Finance, American Finance Association, vol. 48(2), pages 459-485, June.
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    Cited by:

    1. Ari Pandes, J., 2010. "Bought deals: The value of underwriter certification in seasoned equity offerings," Journal of Banking & Finance, Elsevier, vol. 34(7), pages 1576-1589, July.
    2. Sahoo, Ganeswar, 2010. "International Capital Flows: An empirical study of the relationship between equity and debt investments," MPRA Paper 24797, University Library of Munich, Germany.

    More about this item


    private equity; issuing costs; seasoned equity; politiques publiques; financement des petites entreprises; incitatifs fiscaux; investisseurs providentiels;

    JEL classification:

    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill


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