The role of internal and external certification mechanisms in seasoned equity offerings

• We study potential internal and external certification mechanisms for SEOs.
• Internal certification via good governance affects choice of issuance methods.
• External certification via acquiring quality auditing service affects issue costs.

When conducting their seasoned equity offerings (SEOs), US firms have been increasingly relying on shelf offering or accelerated offering rather than non-shelf offering or traditional book building, the predominant issuance methods in the past. Previous studies find that the unpopularity of shelf or accelerated offering in the past is due to the under-certification problem. Therefore, the change in firms’ preferred issuance methods suggests that firms must have obtained adequate certification through various ways. In this paper, we study several potential internal and external certification mechanisms that issuers can utilize and explore their roles in the SEO process. We find that the internal certification via sound corporate governance affects firms’ choice of the issuance method between shelf (accelerated) and nonshelf (non-accelerated) offerings, while the external certification through acquiring high-quality auditing services impacts the issuance costs.