An important function of financial markets is the efficient financing of corporate investment needs. This paper examines how corporate financing transactions are affected by price volatility in U.S. financial markets. Due to the lengthy time required for the negotiation and execution process of corporate financing transactions, financing agreements require the assignment of market risk exposure across transaction parties over the life of the financing process. If market risk is costly to hedge for the financing firm, the underwriter, or other related party, the efficient financing of firm capital needs may be adversely affected. Using monthly U.S. equity-related financing transactions from 1970 to 1998, I find that contemporaneous market volatility affects corporate financing behavior.
Firms raising unseasoned equity capital appear to be most affected by market conditions.