We provide direct evidence on financial market structure and the cost of raising capital. The Order Handling Rules (OHR), which transformed Nasdaq from a dealer-oriented over-the-counter market to a market where investors could directly interact with each other, were phased in over time allowing for identification of their impact on firms’ cost of raising capital. Exploiting this staggered implementation and using a difference-in-difference framework we find that the OHR significantly reduced the underpricing of seasoned equity offerings by one to two percentage points compared to a pre-OHR average of 3.6 percent. Improved secondary market liquidity drives the reduction in underpricing. Joint with James Brugler, Carole Comerton-Forde, and Terrence Hendershott.
