286 B.E. Eckbo et al.
level of competition in the investment banking industry and find that it has weaken the
competitive position of the smaller underwriters.
3.7. Rights and standby offerings
Since the 1950s, rights and standby offerings are used with less frequency in the U.S.
However, they are still commonly employed by some regulated financial firms. Utilities,
REITS, closed-end funds and conversions of mutual thrifts or insurance companies to
stock charter are examples of right issuers discussed in the literature, e.g.,Singh (1997),
Khorana, Wahal, and Zenner (2002), Higgins, Howton, and Howton (2003), Howe and
Shilling (1988), Masulis (1987). More recently, there has been a resurgence of the used
of rights offers beyond utilities and financial firms by financial distressed industrial
firms as reported byHeron and Lie (2004)andUrsel (2006).
3.8. Shelf registered offerings
In 1983 the SEC gave final approval to Rule 415, a new regulation that allowed secu-
rity issuance under an expedited registration process. This option was only available
to larger publicly listed firms.Bhagat, Marr, and Thompson (1985)studied direct and
indirect flotation costs (underwriting fees and other expenses and underpricing) for a
small sample of syndicated firm commitment and shelf issues found that shelf offerings
have lower flotation costs than traditional book building method.
Sherman (1999)develops a model of underwriter certification and the effect of shelf
registrations. She concludes that shelf registrations increase underwriter competition
and reduce the quality of their due diligence investigations.Blackwell, Marr, and Spivey
(1990)examine whether shelf issues reduce underwriters due diligence investigations
and results in higher underpricing. They report that underwriter spreads vary with is-
suer quality and that weaker issuers have to pay a premium relative to firms using a firm
commitment offering.Denis (1991)reported that most industrial security issuers used
shelf offerings primarily for debt securities, which have much lower due diligence con-
cerns.Denis (1993)finds that firms that use shelf registrations some of the time, also
have lower non-shelf SEOs flotation costs. Thus, the inference about the cost saving
associated with using shelf registration was thrown into question. However, Dennis also
notes the low frequency of shelf registered SEOs is consistent with there not being a
cost advantage.
More recently, shelf registration was expanded in 1992 to universal shelf issues,
which allows the offering to be either debt or equity. This change is likely to inten-
sify underwriter competition. Since the rule change, universal shelf registrations have
dominated equity shelf registrations. Moreover, a greater portion of universal shelf is-
sues result in equity offerings.Autore, Kumar, and Shome (2004)revisited the issue of
flotation costs and the impact of shelf registration. They report that shelf issues of SEOs
have overtaken non-shelf issues as the dominant flotation method beginning in 2001
for NYSE, Amex and Nasdaq listed firms. They report that 85 percent of shelf regis-
trations result in no subsequent offer. They find that shelf issues have lower costs and