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the range of available flotation method choices, (3) underwriter competition, (4) in-
formation asymmetries between issuer and outside investors, and (5) the efficiency of
market pricing. This survey discusses each of these five determinants of flotation costs.
Several findings emerge, as well as new questions for future research, some of which
are discussed below.
Public security offerings for cash are vulnerable to conflicts of interests. These con-
flicts have created rationales for substantial regulatory protections of investors and
requirements on issuers. The legal requirements are designed to ensure that investors
receive adequate information disclosure and they limit the “aggressive” marketing by
the issuer. In general, legal systems, tax codes and securities regulations and the treat-
ment of investors of a country are likely to have a significant bearing on the level of
security offering activity. In the U.S., major regulatory milestones include the Secu-
rities Act of 1933 (establishing issue registration and disclosure rules), the Securities
Exchange Act of 1934 (requiring periodic public disclosures via annual 10-K, quarterly
10-Q and occasional 8-K statements), the move to adopt generally accepted accounting
standards (GAAP), the introduction in 1982 of “shelf registration” rules for relatively
low-risk issuers (SEC Rule 415), registration exemptions aimed at reducing regulatory
costs and improving the liquidity of privately placed securities by privately held compa-
nies and foreign issuers in 1990 (SEC Rule 144A), the establishment of Self Regulatory
Authorities (NYSE, NASD) who impose various listing requirements and regulate many
activities of broker-dealers and underwriters, and most recently, the creation as of De-
cember 2005 of a new category of issuers called “well-known seasoned issuers”. These
issuers are given automatic shelf registration status and may have oral or written com-
munications with investors before during and after the offering process.
Looking internationally, there has been an increase in disclosure regulation and in-
creased regulation and enforcement of insider trading activity. Moreover, parallel to U.S.
securities regulation developments, similar national regulatory authorities are develop-
ing around the globe. In 1998, the International Organization of Securities Commissions
(IOSC)—a global organization of national security regulators-adopted a comprehensive
set of objectives and principles of securities regulation, which today are recognized by
the world financial community as international benchmarks for all markets.
Additional research is needed to increase our understanding of the impacts of national
securities laws, corporation laws and bankruptcy laws for firm issuance decisions. More
cross country analyses could help in this regard. Moreover, we need a better under-
standing of the effects of political processes on these critical legal statutes. How does
political corruption influence issuance costs and security issuance choice? How strong
are the financial incentives of the dominant economic powers in a nation to limit po-
tential competition through restrictions on capital market development and what are the
most effective mechanisms for overcoming these effects? How important are particular
reforms that reduce the barriers to global capital market activity in promoting national
financial and economic development?
Regulatory changes provide interesting laboratories for examining empirically the
exogenous determinants of issue costs and issuers’ choice of security and flotation meth-