issues that are influencing firm issuance. Finally, a detailed study into the costs of issuance across many countries could help augment the literature concerning listings and issuance on foreign markets over domestic markets, by identifying whether costs drive the firm’s decision.

This paper takes a first step by studying the primary markets for firms in Brazil, Chile and Mexico, and calculates the components of issuing costs for corporate debt and equity domestically. In addition, the paper highlights specific features of the demand and supply of these assets, which have an impact on both the costs of issuance and the nature of the debt and equity markets in the aggregate. Finally, the paper also presents the costs to these firms of accessing international debt markets, in order to investigate the relative incentives (especially pertaining to cost) that a firm faces when deciding to issue securities.<sup>1</sup> The paper is organized as follows. Section II documents the methodology of the data collection and discusses the types of costs incurred by firms when issuing. Sections III, IV and V present primary market characteristics of Chile, Mexico and Brazil, and the cost data. International issuance costs are shown in Section VI, while Section VII concludes with a comparison across countries.

# **II.  Measuring the Costs of Issuance**

# **A. Types of Costs**

When contemplating issuing debt or equity securities, a firm faces several types of direct and indirect costs. The firm typically contacts an investment bank at the beginning of the process which will advise the company through the necessary steps, and will make it more aware of the out-of-pocket expenses which will be incurred. The company will already have undergone an internal process of analysis, where it has determined that the raising of outside sources of capital is a good alternative, given the nature of the business and the capital requirements. It will normally have decided to pursue either a debt or equity issue, but will rely on the investment bank to help in its decision of the security characteristics, the process, and the timing.

The lead investment bank charges a fee as a percentage of the issue size, which comprises structuring, placement, and underwriting. The range of fees is wide, and depends on a host of firm and issue characteristics. The level of complication of the deal is the primary driver of the fee; for debt, a plain vanilla bond is the cheapest, while structured deals invoke the highest costs. The credit quality and market reputation of the firm also plays a significant role in fee determination, as the more unknown and risky firm’s securities will be more difficult to place, and more risky to underwrite. In the case of fixed income, typically the longer maturity bonds command higher fees as well, again due to the extra risk of the security. Finally, market conditions can supercede all normal pricing methodologies. In a highly competitive environment, some investment banks will charge fees below costs, in order to gain reputation and elevate their status on league tables.

> 1 Data on the costs of international equity issuance is pending and will be added soon.

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