initial public offer underpricing the issuer s view a note many studies for example bear and curley 1 beatty and ritter 2 block and stanley 3 ibbotson 4 ibbotson and jaffe 5 logue 6 mcdonald and fisher 7 neuberger and la chapelle 8 reilly 9 and ritter 10 11 show that initial public offers ipos are underpriced on average when offered to the public all these studies focus on the difference between the offer price and the observed market price which is the return earned by new investors only a few studies refer to issuer oriented measures of underpricing and each also uses the observed market price as the benchmark bear and curley 1 for example based the efficiency of new issue pricing on the relationship between the offering price and the initial secondary market price ibbotson 4 used the market price to describe various explanations for underpricing from the issuer or underwriter s perspective ritter 11 developed a detailed pricing analysis for the choice between firm commitment and best efforts underwriting contracts but the comparison price remained the post issue market price a similar reliance upon the observed market price in measuring ipo underpricing is found in corporate finance textbooks this note demonstrates that traditional investor oriented measures of underpricing may mislead issuers ipos do not simply have a cost with the opposite sign of the investors return rather underpriced new shares create a dilutive effect that may make their real cost or wealth transfer much different section i develops an alternative measure of underpricing that is issuer oriented and documents the difference between the two measures using ipos issued in singapore from 1978 1985 section ii analyzes the increased costs for issuers of underpricing ipos using the new measure of underpricing

distributional and revenue raising arguments for tariffs this paper presents and analyses distributional and revenue raising arguments in favor of tariffs and other trade taxes it shows that such an argument depends crucially on the domestic tax powers that are available to the government conditions that must be satisfied by optimal tariffs are obtained and interpreted these conditions are then applied to a simplified model in order to gain greater insight into the determinants of the optimal tariffs finally the arguments are illustrated by some numerical examples which show that these tariffs can be far from negligible and demonstrate their sensitivity to various parameter changes

labor market flows in the cross section and over time many theoretical models of labor market search imply a tight link between worker flows hires and separations and job gains and losses at the employer level we use rich establishment level data to assess several theoretical models and to study the relationship between worker flows and jobs flows hires quits and layoffs exhibit strong highly nonlinear relationships to employer growth rates in the cross section simple statistical models of these relationships greatly improve our ability to account for fluctuations in aggregate worker flows and enable us to construct synthetic measures of hires separations quits and layoffs back to 1990

secular labor reallocation and business cycles we study the eect of mean preserving idiosyncratic industry shocks on business cycle outcomes we develop an empirical methodology using a local area s exposure to industry reallocation based on the area s initial industry composition and employment trends in the rest of the country over a full employment cycle using confidential employment data by local area and industry over the period 1980 2014 we find sharp evidence of reallocation contributing to worse employment outcomes during national recessions but not during national expansions we repeat our empirical exercise in a multi area multi sector search and matching model of the labor market the model reproduces the empirical results subject to inclusion of two key empirically plausible frictions imperfect mobility across industries and downward nominal wage rigidity combining the empirical and model results we conclude that reallocation can generate substantial amplification and persistence of business cycles at both the local and the aggregate level

the cyclicality of the opportunity cost of employment the flow opportunity cost of moving from unemployment to employment consists of forgone public benefits and the forgone consumption value of nonworking time we construct a time series of the opportunity cost of employment using detailed microdata and administrative or national accounts data to estimate benefits levels eligibility take up consumption by labor force status hours taxes and preference parameters the opportunity cost is procyclical and volatile over the business cycle the estimated cyclicality implies far less unemployment volatility in leading models of the labor market than that observed in the data irrespective of the level of the opportunity cost

restricted redistributive taxation shadow prices and trade policy abstract this paper reports on the use of an algorithm to compute optimal policies in the areas of commodity taxation international trade and public shadow pricing for a government which is interested in redistributing income but has limited powers of taxation the algorithm is applied to selected ldc data using a highly simplified general equilibrium model some insight into the relationships between constraints on taxation and other areas of government policy is provided by analyzing models where domestic tax restrictions can make inefficient public production or tariffs on international trade desirable

sectoral shifts and cyclical unemployment a substantial fraction of cyclical unemployment is better characterized as fluctuations of the frictional or natural rate than as deviations from some relatively stable natural rate shifts of employment demand between sectors of the economy necessitate continuous labor reallocation since it takes time for workers to find new jobs some unemployment is unavoidable this paper presents evidence that most of the unemployment fluctuations of the seventies unlike those in the sixties were induced by unusual structural shifts within the u s economy simple time series models of layoffs and unemployment are constructed that include a measure of structural shifts within the labor market these models are estimated and a derived natural rate series is constructed

signalling and the pricing of new issues this paper develops a signalling model with two signals two attributes and a continuum of signal levels and attribute types to explain new issue underpricing both the fraction of the new issue retained by the issuer and its offering price convey to investors the unobservable intrinsic value of the firm and the variance of its cash flows many of the model s comparative statics results are novel empirically testable and consistent with the existing empirical evidence on new issues in particular the degree of underpricing which can be inferred from observable variables is positively related to the firm s post issue share price

optimal taxation and public production in an open dual economy abstract this paper analyses the determinants of optimal tax policy trade policy and shadow prices for cost benefit analysis in a dual economy it breaks new ground by combining in one model the tax and public investment policies considered in the public economics literature with the notion of labor market imperfection central to contributions on the dual economy optimal policies are first derived analytically providing rules for organizing production setting taxes and off setting labor market distortions production efficiency is shown to obtain for the taxable part of the economy a generalized ramsey rule derived for producing cumconsuming households in the directly non taxable sector of the economy and new characterizations of optimal rural urban migration established in the presence of distortionary taxation a simple general equilibrium model is then numerically implemented on data for a particular developing country the optimal policies analytically derived before are computed in the model under alternative assumptions about government revenue requirements the degree to which different sectors of the economy are directly taxable the nature of property rights and technological substitution possibilities the results of these computations provide further insight into the theoretical results as well as clarifying their quantitative significance

sectoral shifts and cyclical unemployment reconsidered this paper develops a new measure of reallocation shocks based on the variance of industry stock market excess returns to assess the contribution of sectoral reallocation to unemployment in the postwar u s economy the beveridge curve relationship is used to establish that this series isolates reallocation shocks reallocation shocks are found to explain only a moderate share of the fluctuations in aggregate unemployment on average over the period however reallocation accounted for a substantial share of increases in unemployment in several episodes particularly the mid 1970s reallocation shocks also account for a larger share of fluctuations in unemployment of longer durations than of shorter durations

a direct test of rock s model of the pricing of unseasoned issues unique data availability and institutional arrangements for new issues in singapore allow a direct test of the empirical implications of rock s model of pricing unseasoned new issues our empirical results are consistent with the model specifically we find that the unseasoned new issues anomaly disappears when the rationing associated with new issues is incorporated into the analysis the winner s curse is evident in allocation patterns used in singapore

investment and shadow pricing in a growing economy with tax restrictions abstract this paper analyses the evolution of investment and shadow prices in a growing economy where government investment must be financed by distortionary taxation it pays particular attention to the sensitivity of this evolution to the sort of shocks that have affected developing countries recently increased debt service and an increased price for energy the analysis is conducted with the help of a numerical model of a dual economy the main policy implications are that it is inappropriate to use time invariant shadow prices in cost benefit analysis that the response of shadow prices to changes in the economic environment may not be unidirectional and that the accounting rate of interest cannot simply be seen as a regulator of investment that responds to shortages of investment finance in addition the paper develops a new approach to the valuation of terminal capital stock in a finite horizon model and shows how the non convexity of second best models can lead to discontinuities in investment

initial public offering underpricing the issuer s view a comment i consider the underpricing of initial public offerings ipos and the wealth transfers implicit in that underpricing i find that initial returns properly measure the issue cost effect of underpricing as a fraction of offer size as in ritter 1987 i present a measure of the wealth effect of underpricing per share retained in general the wealth effects on existing shareholders depend on the extent to which they participate in the offering from the perspective of issuer s wealth i find that dawson s 1987 measure is appropriate only in the special case in which all of the prior owners shares are sold in the ipo the finance literature contains abundant documentation of the fact that initial public offerings ipos of equity shares are underpriced on average in his review article for example smith 1986 documents numerous studies which find in the aggregate that the initial returns of ipos average about 15 ritter 1987 has recognized that the underpricing itself is a cost borne by issuing firms and he explicitly includes that cost as one of the costs of a public offering in a recent note dawson 1987 pointed out that initial returns can understate the severity of underpricing because underpricing has a dilution effect akin to that of a rights offering made at a price below market value dawson shows that the aftermarket price commonly used in calculating initial returns is lower than the aftermarket price that would have been achieved if underpricing had not occurred dawson suggests a measure which he calls issuer oriented underpricing and that measure is strictly greater than the initial return the purpose of this note is to generalize measures of underpricing by concentrating on the wealth losses incurred by issuers as a result of underpricing dawson s measure is found to hold as a special case but in general issuer wealth effects are determined by the extent to which pre issue shares prior to the ipo participate in the offering initial returns properly measure the underpricing cost as a fraction of the wealth of pre issue shareholders only under special circumstances 1 in fact initial returns can overstate the cost that flows from underpricing measured in terms of the wealth of pre issue shareholders

heterogeneity and unemployment dynamics many previous articles have studied the contribution of inflows and outflows to the cyclical variation in unemployment but ignored the critical role of unobserved heterogeneity across workers thi

anatomy of initial public offerings of common stock initial public offerings of common stocks ipos are typically underpriced in this paper the author develops and tests the hypothesis that underpricing serves as a form of insurance against legal liability and the associated damages to the reputations of investment bankers the empirical results based on samples of ipos that were brought to the market before and after the securities act of 1933 provide considerable support for the implicit insurance hypothesis specifically gross underpricing and market segmentation between prestigious and fringe investment bankers in originating unseasoned new issues appear to be peculiar to the post 1933 era a number of studies have documented that unseasoned common stocks typically garner large positive abnormal returns during a short period following the initial offering in his recent review of the empirical evidence on the initial returns of common stock offerings smith 36 concluded that the returns from offer price to after market price have exceeded fifteen percent his calculations did not include some of the earlier results obtained by mcdonald and fisher 23 and logue 20 when their samples are combined with those in smith s review the initial returns of unseasoned equity offerings appear even larger over seventeen percent these results imply that underwriters consistently offer the securities at substantial discounts from their values that are set in the after market in other words initial public offerings ipos appear to be underpriced what is even more puzzling is the fact that in some time periods underpricing appears to be systematically larger than in other periods ibbotson and jaffe 15 and ritter 29 have documented that during the postwar era there have been a number of periods in which the initial returns of common stocks have been extremely high ritter for example reported that the average return from the offer price to the first after market price was over forty eight percent for ipos in 1980 and 1981 1 similarly the initial returns of unseasoned issues of common stock brought to the market in 1950 1951 1961 and 1968 were unusually large these periods in which ipos were grossly underpriced are referred to as the hotissue markets why do investment bankers underprice ipos why do issuers

pricing initial public offerings further evidence from germany abstract in a recent article in this review wasserfallen and wittleder pricing initial public offerings evidence from germany european economic review 38 1505 1517 1994 ww provide evidence of the well known underpricing phenomenon for 92 german ipos coming to market in 1961 1987 using a larger sample of 189 firms from 1970 1993 this paper i reassesses the evidence on underpricing in germany after choosing a different risk proxy to avoid potential endogeneity problems and ii provides evidence of long run ipo performance a number of new results emerge stock market returns the macroeconomic climate insider retention rates and inverse offer size all affect underpricing positively over longer horizons german ipos are poor investments losing more than twelve percent over their first three years of trading relative to the market exclusive of the initial underpricing return negative performance is heavily concentrated after the end of ww s sampling period in the post 1987 cohort

pricing initial public offerings evidence on the pricing of initial public offerings is presented for germany a data set of 92 going publics over the years 1961 1987 is analyzed on average the initial return from the offer price to the first day of trading adjusted for market movements is more than 15 o tests of several hypotheses indicate that underpricing is related to ex ante uncertainty about the value of the shares

unemployment and vacancies with sectoral shifts recent analyses of unemployment vacancy series suggest that aggregate shocks rather than sectoral shocks are the primary factors responsible for unemployment fluctuations this inference follows from two widely held beliefs sectoral shocks induce only positive unemployment vacancy comovements while negative comovements are necessarily the result of aggregate demand shocks this paper describes an equilibrium matching model that identifies plausible circumstances in which neither assumption is correct thus suggesting that unemployment vacancy data are inconclusive interestingly this model s novel results are due to standard features in the contracting literature firms experience relative price shocks and negotiate contracts that prescribe temporary layoffs copyright 1994 by american economic association

the cost of recessions revisited a reverse liquidationist view the observation that liquidations are concentrated in recessions has long been the subject of controversy one view holds that liquidations are beneficial in that they result in increased restructuring another view holds that this rise in restructuring is costly since liquidations are privately inefficient and essentially wasteful this paper proposes an alternative perspective on the basis of a combination of theory with empirical evidence on gross job flows and on financial and labour market rents we find that cumulatively recessions result in reduced rather than increased restructuring and that this is likely to be socially costly once we consider inefficiencies on both the creation and destruction margins copyright 2005 wiley blackwell

why has regional income convergence in the u s declined the past thirty years have seen a dramatic decrease in the rate of income convergence across states and in population flows to wealthy places these changes coincide with 1 an increase in housing prices in productive areas 2 a divergence in the skill specific real returns to living in productive places 3 a redirection of low skilled migration and 4 diminished human capital convergence due to migration we develop a model where falling housing supply elasticity and endogenous labor mobility generates these patterns using a new panel measure of housing supply regulations we demonstrate the importance of this channel income convergence continues in less regulated places while it has stopped in more regulated places

signalling by underpricing in the ipo market abstract empirical evidence suggests the existence of hot issue markets for initial public offerings in certain periods and in certain industries new issues are underpriced and rationing occurs this paper develops a model consistent with this observation which assumes the firm itself best knows its prospects in certain circumstances firms with the most favorable prospects find it optimal to signal their type by underpricing their initial issue of shares and investors know that only the best can recoup the cost of this signal from subsequent issues

unemployment and business cycles we develop and estimate a general equilibrium search and matching model that accounts for key business cycle properties of macroeconomic aggregates including labor market variables in sharp contrast to leading new keynesian models we do not impose wage inertia instead we derive wage inertia from our specification of how firms and workers negotiate wages our model outperforms a variant of the standard new keynesian calvo sticky wage model according to our estimated model there is a critical interaction between the degree of price stickiness monetary policy and the duration of an increase in unemployment benefits

the determinants and welfare implications of us workers diverging location choices by skill 1980 2000 abstract from 1980 to 2000 the rise in the us college high school graduate wage gap coincided with increased geographic sorting as college graduates concentrated in high wage high rent cities this paper estimates a structural spatial equilibrium model to determine causes and welfare consequences of this increased skill sorting while local labor demand changes fundamentally caused the increased skill sorting it was further fueled by endogenous increases in amenities within higher skill cities changes in cities wages rents and endogenous amenities increased inequality between high school and college graduates by more than suggested by the increase in the college wage gap alone jel d31 i26 j24 j31 j61 r23

the unemployment volatility puzzle is wage stickiness the answer i discuss the failure of the canonical search and matching model to match the cyclical volatility in the job finding rate i show that job creation in the model is influenced by wages in new matches i summarize microeconometric evidence and find that wages in new matches are volatile and consistent with the model s key predictions therefore explanations of the unemployment volatility puzzle have to preserve the cyclical volatility of wages i discuss a modification of the model based on fixed matching costs that can increase cyclical unemployment volatility and is consistent with wage flexibility in new matches

in search of complementary assets the determinants of alliance formation of high tech start ups abstract why do new technology based firms ntbfs cooperate starting from teece s teece d j 1986 profiting from technological innovation implications for integration collaboration licensing and public policy research policy 15 285 305 conceptual framework and taking advantage of subsequent literature on alliance formation in the resource and competence based tradition and in the social structure perspective we derive an empirical model that aims at highlighting the inducements and obstacles that these firms face in alliance formation according to firm specific characteristics and the nature of the alliance in particular a distinction is made between exploitative commercial alliances and explorative technological alliances the econometric estimates based on a large sample of italian young high tech firms that are observed from 1994 to 2003 provide strong evidence supporting two key intuitions of teece s work first the combination of specialized complementary assets appears to be a key driver of the formation of exploitative commercial alliances by ntbfs more specifically patent holding affects positively the likelihood to establish commercial alliances but this propensity is found to rapidly decrease with firm size suggesting that as long as ntbfs become larger and possess specialized commercial assets their urge for commercial alliances diminishes second following the parallelism set forth by teece between search for alliance partners and access to external financing the analysis indicates that potentially beneficial alliances may not take place because of the high transaction costs faced by smaller ntbfs in this respect our results clearly support the view that sponsor institutions as public research organizations venture and corporate venture capitalists may sensibly reduce these costs and that their role crucially depends on both the identity of the sponsor and the type of alliance

a simple test of baron s model of ipo underpricing abstract this paper tests baron s 1982 model of initial public offering ipo underpricing that model relies on information asymmetries between issuers and underwriters and predicts that offer prices will be lower than would prevail in the absence of asymmetric information we examine the initial public offerings of 38 investment banks that went public in the period 1970 1987 and participated in the distribution of their own securities we find that contrary to the implication of baron s model such self marketed offerings are characterized by statistically significant underpricing comparable to that of other ipos

the establishment level behavior of vacancies and hiring this paper is the first to study vacancies hires and vacancy yields at the establishment level in the job openings and labor turnover survey a large sample of u s employers to interpret the data we develop a simple model that identifies the flow of new vacancies and the job filling rate for vacant positions the job filling rate moves counter to aggregate employment but rises steeply with employer growth rates in the cross section it falls with employer size rises with worker turnover rates and varies by a factor of four across major industry groups we also develop evidence that the employer level hiring technology exhibits constant returns and that at the employer level and that employers rely heavily on other instruments in addition to vacancies as they vary hires we also develop evidence that effective recruiting intensity per vacancy varies over time accounting for about 41 of movements in aggregate hires in the 2007 to 2009 period our evidence and analysis provide useful inputs for assessing developing and calibrating theoretical models of search matching and hiring in the labor market

a model of the demand for investment banking advising and distribution services for new issues this paper presents a theory of the demand for investment banking advising and distribution services for the case in which the investment banker is better informed about the capital market than is the issuer and the issuer cannot observe the distribution effort expended by the banker the optimal contract under which the offer price decision is delegated to the better informed banker in order to deal with the adverse selection and moral hazard problems resulting from the informational asymmetry and the observability problem is characterized the model demonstrates a positive demand for investment banking advising and distribution services and provides an explanation of the underpricing of new issues an investment banker performs three functions which may be of value to an issuer of new securities underwriting advising and distribution this paper presents a theory of the demand for investment banking advising and distribution services based on an informational asymmetry between an issuer of new securities and an investment banker ultimately a theory of the organization of the financial intermediary industry is required that would predict which firms would use which types of financial intermediaries for which purposes and which firms would raise capital without engaging the services of a financial intermediary only a limited set of such predictions are developed here in the context of a model of a fixedprice offering under a negotiated contract in which the investment banker is

the costs of going public abstract this paper presents evidence regarding the two quantifiable components of the costs of going public direct expenses and underpricing together these costs average 21 22 of the realized market value of the securities issued for firm commitment offers and 31 87 for best efforts offers for a given size offer the direct expenses are of the same order of magnitude for both contract types but the underpricing is greater for best efforts offers an explanation of why some firms choose to use best efforts offers in spite of their apparent higher total costs is given

real business cycles in this paper we demonstrate how certain very ordinary economic principles lead maximizing individuals to choose consumption production plans that display many of the characteristics commonly associated with business cycles our explanation is entirely consistent with i rational expectations ii complete current information iii stable preferences iv no technological change v no long lived commodities vi no frictions or adjustment costs vii no government viii no money and ix no serial dependence in the stochastic elements of the environment we also provide a completely worked out example of the type of artificial economy we have in mind the time series properties of the example exhibit some major features of observed business cycles although this type of model may not be capable of explaining all of the regularities in actual business cycles we believe that it provides a useful well defined benchmark for assessing the relative importance of factors e g monetary disturbances