Firm location determines equity issuance

Jun 24, 2008

[B]Seasoned equity offerings less common for rural firms[/B]
A new study in the journal Financial Management reveals that firms in rural areas are less likely to issue equity than firms in urban areas. In addition, rural firms that do issue equity use lower-quality underwriters.

Tim Loughran, Professor of Finance at the University of Notre Dame, compared equity issuance by firms in urban areas, defined as the 10 largest metropolitan areas of the U.S., and rural areas, defined as at least 100 miles from the center of any metropolitan area of 1,00,000 people or more.

Seasoned equity offerings are significantly less common for rural firms. Similarly, firms with lengthy drives to the nearest major airport are less likely to issue equity.

Rural companies have few potential purchasers of stock located nearby. Therefore, the marginal investor for an equity offering by a rural firm is likely to be located quite a distance away. This puts the equity investor in a rural offering at a more significant information disadvantage to insiders than an equity investor in an urban company's offering.

Also, underwriters used by rural firms and firms located far from major airports tend to be less prestigious. This evidence is consistent with the assertion that the location of a firm's headquarters affects its ability to issue equity and plays a role in the ability of the firm to select quality underwriters for any offerings.

"Firms from rural areas are less likely to conduct a follow-on offering, even after adjusting for firm size, prior stock returns, book-to-market ratios, and other factors," the authors conclude. "Geographic location is closely related to information asymmetries."

Source: Wiley-Blackwell

Explore further: Ig Nobel winner: Using pork to stop nosebleeds

add to favorites email to friend print save as pdf

Related Stories

Oil drilling technology leaps, clean energy lags

May 02, 2013

Technology created an energy revolution over the past decade—just not the one we expected. By now, cars were supposed to be running on fuel made from plant waste or algae—or powered by hydrogen or cheap ...

India tech tycoon donates $2.3 bn to charity

Feb 23, 2013

Indian software tycoon Azim Premji said Saturday he has given $2.3 billion to an education charity that he controls, reportedly the biggest charitable donation in the country's recent history.

LightSquared gets first deal with a phone company

Mar 22, 2011

(AP) -- LightSquared, a company building a new wireless broadband network to compete with those of AT&T Inc., Verizon Wireless and Clearwire Corp., announced Tuesday its first phone-company customer, Leap Wireless International ...

Indian telecom presses the red button

Dec 15, 2005

What could be the cheapest mode of communication, tying a note to a homing pigeon or making a mobile call? Ask this of Tata Teleservices, one of India's most aggressive mobile-phone service providers, and the company would ...

Recommended for you

Ig Nobel winner: Using pork to stop nosebleeds

Sep 19, 2014

There's some truth to the effectiveness of folk remedies and old wives' tales when it comes to serious medical issues, according to findings by a team from Detroit Medical Center.

History books spark latest Texas classroom battle

Sep 16, 2014

As Texas mulls new history textbooks for its 5-plus million public school students, some academics are decrying lessons they say exaggerate the influence of Christian values on America's Founding Fathers.

Flatow, 'Science Friday' settle claims over grant

Sep 16, 2014

Federal prosecutors say radio host Ira Flatow and his "Science Friday" show that airs on many National Public Radio stations have settled civil claims that they misused money from a nearly $1 million federal ...

User comments : 0