ipo underpricing and flotation methods in taiwan a stochastic frontier approach adopting stochastic frontier analysis this article studies the pricing model and underpricing phenomenon of the initial public offerings ipos in taiwan and further elucidates the potential impact of offering mechanisms on underpricing the sampling period is from 1996 to 2003 in which 647 ipos are selected empirical results suggest that issuing firms with greater earning potentials less risk or less asymmetric information have lower underpricing furthermore the variables included to explain underpricing are mostly significant especially the proxy variable for flotation method observed mean ipo underpricing is 20 59 in the sample period compared to 17 12 for the subgroup using the auction method this statistically significant difference implies that the introduction of the auction method can help reduce ipo underpricing

optimal supply diversification under general supply risks we analyze a planning model for a firm or public organization that needs to cover uncertain demand for a given item by procuring supplies from multiple sources the necessity to employ multiple suppliers arises from the fact that when an order is placed with any of the suppliers only a random fraction of the order size is usable the model considers a single demand season with a given demand distribution where all supplies need to be ordered simultaneously before the start of the season the suppliers differ from one another in terms of their yield distributions their procurement costs and capacity levels the planning model determines which of the potential suppliers are to be retained and what size order is to be placed with each we consider two versions of the planning model in the first the service constraint model scm the orders must be such that the available supply of usable units covers the random demand during the season with at least a given probability in the second version of the model the total cost model tcm the orders are determined so as to minimize the aggregate of procurement costs and end of the season inventory and shortage costs in the classical inventory model with a single fully reliable supplier these two models are known to be equivalent but the equivalency breaks down under multiple suppliers with unreliable yields for both the service constraint and total cost models we develop a highly efficient procedure that generates the optimal set of suppliers as well as the optimal orders to be assigned to each most importantly these procedures generate a variety of important qualitative insights for example regarding which sets of suppliers allow for a feasible solution both when they have ample supply and when they are capacitated and how various model parameters influence the selected set of suppliers the aggregate order size and the optimal cost values

valuation of dynamic reactive power support services for transmission access competitive procurement of reactive power support services is rapidly becoming a reality for deregulated electricity markets it has resulted in a great need to quantify the value of reactive power support from var sources this article presents research results on the development of new concepts and schemes for equitable reactive power support valuation performance characteristics of the proposed method are determined and practical application issues are addressed the validity of the method is verified through sensitivity studies this work emphasizes that the valuation of reactive power support services should be based on their contributions to system security and stability the dynamic var is the primary concern for the reactive power valuation problem

optimal allocation of primary reserve services in energy markets this paper presents an optimization algorithm which provides generation economic dispatch minimizing simultaneously the cost of primary reserve services while ensuring the secure operation of the power system in the presence of disturbances the algorithm takes into consideration security constraints which are extracted from the chain rules provided by decision trees the proposed method is easy to implement in day ahead and real time balancing markets and is characterized from accuracy versatility and flexibility examples demonstrating application of the method on an actual power system model are presented and discussed

coordinated fuzzy constrained optimal power dispatch for bilateral contract balancing electricity and ancillary services markets this paper proposes a coordinated fuzzy constrained optimal power dispatch cfcopd algorithm for bilateral contract balancing electricity and ancillary services markets the cfcopd problem is decomposed into social welfare fuzzy maximization subproblem which is solved by mixed integer fuzzy linear programming miflp and combined reactive power cost and cost of real power loss fuzzy minimization subproblem which is solved by fuzzy linear programming flp the proposed cfcopd algorithm is tested on the modified ieee 30 bus system and the thai power 424 bus system the dispatch results show that the social welfare of the fuzzy constrained competitive electricity and ancillary services price ceasp scheme with bilateral contract curtailment bids is higher than those of competitive electricity price cep scheme and ceasp scheme with and without bilateral contract curtailment bids leading to a lower average electricity price

split award auctions for supplier retention to stay abreast of current supply market pricing it is common for procurement managers to frequently organize auctions among a pool of qualified suppliers the supply base sole awards can alienate losing suppliers and cause them to defect from the supply base to maintain the supply base and thereby control the high costs of finding and qualifying new suppliers buyers often employ split awards which in turn inflate purchase costs this results in a trade off that we investigate in an infinite horizon stationary setting in which the relative cost position of each supplier is randomly drawn in every period we characterize the optimal split award that minimizes long run costs purchasing and qualification and show that maintaining a constant supply base size using a qualify up to policy is optimal for the buyer we find that neither the extent of multisourcing nor the buyer s value of split awards compared with winner take all auctions are monotonic in the qualification cost and that split award auctions can increase ex ante system buyer and supplier benefits simultaneously to our knowledge this is the first paper studying split award auctions for supply base maintenance and it will hopefully galvanize further research on this important topic this paper was accepted by yossi aviv operations management

calculation of the elastic demand curve for a day ahead secondary reserve market the level of secondary reserve needed in a power system is traditionally settled by system operators according to engineering criteria this paper proposes a novel methodology to determine the optimum level of secondary reserve based on both engineering and economic criteria within the proposed approach a price elastic quantity demand curve for the secondary reserve is built this approach assumes that the provision of secondary reserve is made under a competitive market in this market the supply curve that collects the bids from generators providing secondary reserve is matched with the calculated elastic demand cost curve the cross of the supply and demand curves determines the optimal level of secondary reserve and the price for provision of the service the developed approach is illustrated with a case study based on the current day ahead secondary reserve market in spain

efficient use of generator resources in emerging electricity markets in the emerging electricity market generators sell ancillary services as well as energy to the system operator pricing of ancillary services makes the scheduling of units more difficult due to the resulting unit cost curves the new climate will encourage generators to exploit the flexibility of their units in terms of operating modes this paper uses the augmented hopfield neural network to deal with ancillary service prices specifically reserve and ramping prices submitted by generators and to schedule units with a choice of operating modes

allocation of initial public offerings and flipping activity abstract there is a general perception that the large trading volume in initial public offerings is mostly due to flippers that are allocated shares in the offering and immediately resell them on average however flipping accounts for only 19 of trading volume and 15 of shares offered during the first two days of trading institutions do more flipping than retail customers and hot ipos are flipped much more than cold ipos institutions do not quickly flip cold ipos to take advantage of price support activities by the underwriter explicit penalty bids are rarely assessed against flippers

confidence building and politics in privatization some evidence from spain abstract this paper analyzes privatization on the stock market and has two main findings first sips underpricing is consistent with the confidence building hypothesis derived from political risk under asymmetric information larger initial returns occurred in the early stages of privatization which is consistent with the hypothesis that governments use underpricing to be credible privatizators second evidence gives support to the hypothesis that explicit political motives influence the design of privatization which is affected by the political majority

calculating short run marginal costs of active and reactive power production proper pricing of active and reactive power is an important issue for economic and secure operations of power systems in an open transmission access ota environment this paper presents a flexible formulation for this purpose the proposed formulation identifies an important price component for reactive power which is fundamentally different from those existing in the literature this makes the pricing of reactive power more understandable the proposed approach is efficient for real time application and allows for carrying out active and reactive power pricing simultaneously or independently through the use of the decoupled optimal power flow formulation price signals derived from this approach are quite meaningful from an engineering point of view in addition the proposed approach can be easily extended to evaluate nugs and wheeling transactions the paper includes test results on the 30 and 118 bus ieee standard systems

price stabilization as a bonding mechanism in new equity issues abstract underwriters have an incentive to overstate investor interest in order to persuade some investors to purchase shares at a price in excess of their initial estimate of the fair value we show that this incentive is eliminated when the underwriter commits to secondary market price stabilization destroying the underwriter s incentive to overstate interest reduces the total surplus captured by initial investors in initial public offerings further efficiency gains are associated with penalty bid systems that permit the underwriter to make the stabilization commitment selectively price stabilization can thus be viewed as a bonding mechanism that improves the efficiency of the primary equity market

an ordinal optimization based bidding strategy for electric power suppliers in the daily energy market the deregulation and reconstruction of the electric power industry worldwide raises many challenging issues related to the economic and reliable operation of electric power systems traditional unit commitment or hydrothermal scheduling problems have been integrated with generation resource bidding but the development of optimization based bidding strategies is only at a very preliminary stage this paper presents a bidding strategy based on the theory of ordinal optimization that the ordinal comparisons of performance measures are robust with respect to noise and modeling error and the problems become much easier if the optimization goal is softened from asking for the best to good enough solution the basic idea is to use an approximate model that describes the influence of bidding strategies on the market clearing prices mcp a nominal bid curve is obtained by solving optimal power generation for a given set of mcps via lagrangian relaxation then n bids are generated by perturbing the nominal bid curve the ordinal optimization method is applied to isolate a good enough set s that contains some good bids with high probability by performing rough evaluation the best bid is then selected by solving full hydrothermal scheduling or unit commitment problems for each of the bids in s using ordinal optimization approach we are able to obtain a good enough bidding strategy with reasonable computational effort numerical results using historical mcps from the california market and a generation company with 10 units show that the ordinal optimization based method is efficient

wheeling rates of reactive power flow under marginal cost pricing wheeling is the transmission of electrical power and reactive power from a seller to a buyer through a transmission network owned by a third party the wheeling rate is an area of intense research in view of increased deregulation this paper uses a wheeling rate based on marginal cost pricing and implemented using a modification of the optimal power flow opf a case study based on the ieee 30 bus system illustrates the magnitudes and ranges that wheeling rates might have in different circumstances special attention is paid to reactive wheeling which cannot be analyzed with a dc model used by previous authors the ratio of wheeling rates between real and reactive flow shows the importance of the latter the paper also discusses the significance of this for the trade off between paying for reactive wheel or investing in compensating plant

ipo underpricing and international corporate governance it is well established that a link exists between a country s legal system and the size liquidity and value of its capital markets we study how differences in country level governance affect the underpricing of initial public offerings ipos examining 4462 ipos across 29 countries from 2000 to 2004 we find the surprising result that underpricing is higher in countries with corporate governance that strengthens the position of investors relative to insiders we conjecture that when countries give outsiders more influence ipo issuers underprice more to generate excess demand for the offer which in turn leads to greater ownership dispersion and reduces outsiders incentives to monitor the behavior of corporate insiders in other words underpricing is a cost that insiders pay to maintain control in countries with legal systems designed to empower outsiders consistent with this control motivation for underpricing we find that underpricing has a negative association with post ipo outside blockholdings and a positive association with private control benefits in addition firms whose insiders are entrenched either by majority ownership or by dual class structures do not underprice more in countries with better governance in these firms the ownership structure protects managers from outside influence eliminating the incentive to increase outside ownership dispersion through underpricing

conservatism and international ipo underpricing we study the impact of country level accounting conservatism on international ipo underpricing examining 13 285 ipos from 36 countries we find that ipos are underpriced less in countries in which existing public firms practice more accounting conservatism the link between conservatism and underpricing is robust to alternative measures of conservatism country mean regressions sample country exclusions and endogenous treatment models consistent with the hypothesis that conservatism reduces underpricing by mitigating the impact of information asymmetries we find that higher country level conservatism is associated with lower country level pin values and that the negative relation between conservatism and underpricing is strongest for ipos involving small firms in which information asymmetries are likely to be high lastly we find evidence that legal origin a factor linked to the practice of conservatism influences the relations between underpricing and conservatism

simple auctions for supply contracts this paper studies an optimal procurement mechanism for a newsvendor like problem where the buyer s newsvendor s purchase price of the supplies is not fixed but determined through interaction with candidate suppliers the buyer has priors on the suppliers costs but does not know their costs exactly recent literature has shown how the buyer can implement the optimal procurement mechanism by announcing a revenue function specifying a payment for each quantity the buyer may purchase then auctioning off the supply contract with the specified revenue function in this paper we show that a simple modified version of the standard open descending auction for a fixed quantity is also an optimal mechanism for obtaining supplies what distinguishes this mechanism is its simplicity and familiarity for the suppliers open descending auctions are very easy to run and ubiquitous in practice whereas auctioning supply contracts with a specified revenue function is much less observed and more difficult to explain

coordination in split award auctions we analyze split award procurement auctions in which a buyer divides full production between two suppliers or awards all production to a single supplier and suppliers have private cost information an intriguing feature of split awards is that the equilibrium bids are implicitly coordinated because a split award price is the sum of offered split prices each supplier can unilaterally veto a split award by bidding very high for the split the need to coordinate is reflected in a split price that does not vary with private information we also explore conditions under which split award auctions may be preferred to winner take all auctions

a theory of the transition to secondary market trading of ipos abstract we develop a model in which investment banks and institutional investors collaborate in smoothing an initial public offering s ipos transition to secondary market trading their intervention promotes welfare under the assumption that significant new information arrives in the market in the immediate aftermath of the ipo under this assumption it is optimal to stage the offering and suboptimal to commit to selling shares at a uniform price the optimal strategy yields an economic rationale for secondary market price stabilization for ipos carried out via a well coordinated network of repeat institutional investors

oligopolistic competition of gencos in reactive power ancillary service provisions the need for a market based approach for reactive power procurement has been recognized by ferc due to the localized characteristic of reactive power regulatory mechanisms are necessary to mitigate the possibility of holding market power by generators the regulator is responsible for devising the regulatory mechanisms that provide incentives to generators to supply reactive power while preventing the abuse of market power this paper proposes a mathematical model to simulate the strategic behavior of generators supplying reactive power while considering the system operator s schedule the proposed method can be used by the regulator to simulate the market behavior in the reactive power supply we further study how regulatory policies affect the strategic behavior an alternative price cap method has been proposed and tested in the numerical example to mitigate the effect of strategic behavior of generators in reactive power procurement by the system operator the numerical examples are tested on the nordic 32 bus system

evidence on price stabilization and underpricing in early ipo returns using data on 560 firm commitment initial public offerings of common stock for the 1982 1983 period we find that the cross sectional distribution of one day returns is modeled better as a mixture of two distributions with the parameter estimates of one distribution being consistent with underpricing and the other with price stabilization further the evidence that early ipo returns are drawn from a mixture distribution persists for at least four weeks the implications of these results for the analysis of ipo returns are illustrated by examining the influence of a measure of ex ante price uncertainty on ipo pricing

a method for simulation and analysis of reactive power market this paper presents a method for the simulation and analysis of alternative reactive power market arrangements based on combined reactive power capacity and energy payments the value of reactive power support in terms of both capability and utilisation of each particular generator is quantified using a developed security constrained reactive optimal power flow the relative competitiveness of participating generators is also assessed for a spectrum of arrangements between a reactive capacity and a reactive utilisation based market also the conflicting objectives of the system operator as a purchaser of reactive power service and generators as suppliers of the services are analysed

prevention is better than cure the role of ipo syndicates in precluding information acquisition we treat information acquisition by potential investors in initial public offerings as endogenous with endogenous information the critical question is why underwriters would allow investors to spend resources acquiring superior information intended solely to effect a wealth transfer we show that an investment banking syndicate is an institutional arrangement designed to avoid such a transfer by inviting rival banks to share in the offering a managing underwriter ensures they have a strong incentive to remain ignorant we characterize the resulting outcome as one of symmetric ignorance the desire to maintain symmetric ignorance is consistent with the observed passivity of nonmanaging syndicate participants

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

the impact of cash flow volatility on discretionary investment and the costs of debt and equity financing abstract we show that higher cash flow volatility is associated with lower average levels of investment in capital expenditures r d and advertising this association suggests that firms do not use external capital markets to fully cover cash flow shortfalls but rather permanently forgo investment cash flow volatility also is associated with higher costs of accessing external capital moreover these higher costs as measured by some proxies imply a greater sensitivity of investment to cash flow volatility thus cash flow volatility not only increases the likelihood that a firm will need to access capital markets it also increases the costs of doing so

competitive acquisition of prioritizable capacity based ancillary services the rational buyer procedure provides the competitive procurement of capacity based ancillary services as in unbundled markets by the independent grid operator igo the capacity based as are prioritized in order of ascending response times prioritization allows substitutability of the as by automatically making the unused capacity of a higher priority as usable for any lower priority as without the need of submitting additional offers we develop an efficient scheme for the rational buyer procedure for the acquisition of the prioritizable capacity based as the scheme allows the simultaneous determination of the successful offers in the multiauction procedure through the effective deployment of discrete programming notions and the exploitation of the structural characteristics of the formulation a key feature is the incorporation of physical constraints such as capacity ramp rate and interzonal constraints the use of bounding techniques combined with procedures for the quick detection of infeasible combinations of the offer prices and the identification of avoidable calculations leads to reducing the computational burden the effectiveness and computational efficiency of the scheme are illustrated with representative numerical results including case studies based on the ieee 118 bus network

a survey of frequency and voltage control ancillary services part i technical features this two part paper surveys the frequency and voltage control ancillary services in power systems from various parts of the world in this second part essential economic features that must be taken into account when designing markets for ancillary services are first discussed the methods adopted in eight different systems australia france germany great britain new zealand pjm spain and sweden for trading frequency and voltage control ancillary services are then compared lastly new indicators for comparing volumes and costs of ancillary services across systems are proposed and calculated for the systems included in this survey the companion paper surveys the technical features of these ancillary services

incentive compatible imbalance settlement imbalance settlement markets are managed by the system operators and provide a mechanism for settling the inevitable discrepancies between contractual agreements and physical delivery in european power markets settlements schemes are mainly based on heuristic penalties these arrangements have disadvantages first they do not provide transparency about the cost of the reserve capacity that the system operator may have obtained ahead of time nor about the cost of the balancing energy that is actually deployed second they can be gamed if market participants use the imbalance settlement as an opportunity for market arbitrage for example if market participants use balancing energy to avoid higher costs through regular trade on illiquid energy markets third current practice hinders the market based integration of renewable energy and the provision of financial incentives for demand response through rigid penalty rules in this paper we try to remedy these disadvantages by proposing an imbalance settlement procedure with an incentive compatible cost allocation scheme for reserve capacity and deployed energy incentive compatible means that market participants voluntarily and truthfully state their valuation of ancillary services we show that this approach guarantees revenue sufficiency for the system operator and provides financial incentives for balance responsible parties to keep imbalances close to zero

risk reputation and ipo price support immediately following an initial public offering underwriters often repurchase shares of poorly performing offerings in an apparent attempt to stabilize the price using proprietary nasdaq data i study the price effects and determinants of price support some of the key findings are 1 stabilization is substantial inducing price rigidity at and below the offer price 2 i find no evidence that stocks with larger information asymmetries are stabilized more strongly 3 larger underwriters stabilize more perhaps to protect their reputations with investors and 4 investment banks with retail brokerage operations stabilize much more than other banks inconsistent with the view that stabilization benefits primarily institutional investors

unbundled reactive support service key characteristics and dominant cost component in this paper the authors present a systematic exposition of generator provided reactive support as an unbundled ancillary service under open access transmission they discuss the nature and salient physical characteristics of reactive support and analyze their implications in acquiring var support as one of the ancillary services the paper provides an analysis of the dominant component in the cost structure of this service this component is determined from the opportunity costs which are evaluated from the foregone profits of a generator in making sales in real power markets by providing reactive support instead of real power they illustrate the combined effects of the voltage set points of the generators and of the generator capability constraints on the transactions in competitive electricity markets both under normal and contingency operating conditions they discuss the key role of the grid operator in the provision of the reactive support and the key considerations in the acquisition and pricing of the reactive support service

cultural differences and cross border venture capital syndication we examine cross border syndication in investments led by foreign venture capitalists vcs focusing on the potential correlation between cultural differences and the formation of vc syndicates contrary to the risk sharing motive we find that a greater cultural disparity between the countries of investors and their companies is actually associated with smaller vc syndicates this is driven largely by lesser local investor representation in foreign vc led syndicates however certain cultural disparity related syndication strategies such as the involvement of locally experienced foreign vcs or syndicate members from culturally similar countries are associated with greater presence of local vcs who provide valuable monitoring services we further show that these culture linked syndication approaches are significantly correlated with vc financing and monitoring strategies in cross border investments and their eventual success

the winner s curse legal liability and the long run price performance of initial public offerings in finland abstract rationing data for initial public offerings ipos in the finnish market make possible a test of rock s 1986 winner s curse hypothesis the evidence from 80 ipos issued between 1984 and 1989 confirms the presence of the winner s curse average returns adjusted for the bias in allocation are lower than average unadjusted returns but the initial returns of these ipos appear unrelated to lawsuit avoidance as the sample firms seem unlikely to incur legal liabilities in the long run consistent with the evidence in the united states the ipo firms substantially underperform the helsinki stock exchange value weighted index

pricing of reserves valuing system reserve capacity against spot prices in electricity markets this paper models the interdependencies between markets for secondary reserve capacity and spot electricity to derive the pricing of reserves under equilibrium conditions starting with the indifference condition between offering in both markets the reservation price is derived from the opportunity cost consideration and the unit commitment conditions in a fundamental interrelated market framework the reserve market examined compares widely to the german market for secondary reserves but the general approach may also be used to investigate other reserve markets the approach explores and formalizes the influence of reserve capacity on the spot market supply function a numerical solution procedure is provided to this non trivial case of market interaction the model is used to estimate the expected reservation price development over the last years in germany

a theory of the syndicate form follows function we relate the organizational form of investment banking syndicates to moral hazard in team production although syndicates are dissolved upon deal completion membership stability across deals represents a barrier to entry that enables the capture of quasi rents this improves incentives for individual bankers to cultivate investor relationships that translate into greater expected proceeds reputational concerns of lead bankers amplify the effect we derive conditions under which restricted entry and designation of a lead banker strictly pareto dominate in which case it is also strictly pareto dominant for the syndicate s fee to be greater than members cost of participation copyright the american finance association 2001

auctioning supply contracts this paper studies a procurement problem with one buyer and multiple potential suppliers who hold private information about their own production costs both the purchase quantity and the price need to be determined an optimal procurement strategy for the buyer requires the buyer to first design a supply contract that specifies a payment for each possible purchase quantity and then invites the suppliers to bid for this contract the auction can be conducted in many formats such as the english auction the dutch auction the first priced sealed bid auction and the vickrey auction the winner is the supplier with the highest bid and is given the decision right for the quantity produced and delivered applying this theory to a newsvendor model with supply side competition this paper establishes a connection between the above optimal procurement strategy and a common practice in the retail industry namely the use of slotting allowances and vendor managed inventory also discussed in the newsvendor context are the role of well known supply contracts such as returns contracts and revenue sharing contracts in procurement auctions the scenarios where the buyer and suppliers may possess asymmetric information about the demand distribution and how the cost of supply demand mismatch is affected by supply side competition finally this paper compares the optimal procurement strategy with a simpler but suboptimal strategy where the buyer first determines a purchase quantity and then seeks the lowest cost supplier for the quantity in an auction

an empirical investigation of ipo returns and subsequent equity offerings abstract several recent papers present signaling models in which firms underprice their initial public offerings of equity ipos so that they can subsequently issue seasoned equity at more favorable prices we test the implications of these models we find a positive relation between ipo underpricing and the probability and size of subsequent seasoned offerings although these results are consistent with the implications of the signaling hypotheses the economic significance appears weak we conduct additional tests to evaluate other explanations for these findings and find the alternatives more compelling

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

testing for deliberate underpricing in the ipo premarket a stochastic frontier approach we re evaluate the ipo underpricing phenomenon using the stochastic frontier methodology the advantage of the stochastic frontier is that it can be used to measure the level of deliberate underpricing in the premarket without using after market information this is accomplished through the estimation of a systematic one sided error term that measures inefficiency or the difference between the maximum predicted offer price and the actual offer price data for the analysis are comprised of 1 035 ipos of common stock issued by firm commitment between 1975 and 1984 ipos appear to be deliberately underpriced in the premarket in both hot market and nonhot market periods moreover the determinants of the maximum ipo price have different effects in the two time periods article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

reactive power as an ancillary service this paper addresses the problem of reactive power procurement by an independent system operator iso in deregulated electricity markets a reactive bid structure is proposed in the context of a reactive power market based on the reactive power price offers and technical constraints involved in reactive power planning a two tier approach is developed to determine the most beneficial reactive power contracts for the iso the reactive capability of a generator and therefore the opportunity costs in providing reactive power is also included in the model uncertainty in reactive demand and in reactive bids of participating parties is incorporated through monte carlo simulations and the expected reactive power procurement plan for the iso is hence determined the cigre 32 bus network approximately representing the swedish system is used for the studies

development of modified rational buyer auction for procurement of ancillary services utilizing participation matrix abstract the rational buyer auction is based on a simultaneous auction that is the redesigned auction mechanism for ancillary services by the california independent system operator caiso the incentive for the rational buyer auction is caiso s intent to adopt a common sense rule of substituting higher quality lower cost services for lower quality higher cost services when it results in reduced total procurement cost for the purposes of designing a desirable auction where the minimum cost for the objective function as well as prevention of price reversal are achieved either the payment cost in marginal pricing auction must be lowered or price reversal in rational buyer auction must be avoided the objectives of this study are a to develop a newly proposed modified rational buyer auction that does not allow price reversal and b to propose and validate a solution procedure that is based on participation matrix and discrete programming the validation of the proposed solution procedure is accomplished through examination of two case studies available in the literature based on the first case study data it is shown that the newly developed modified rational buyer auction avoids price reversal occurrence while the total payment of iso is increased by 5 8 as compared with rational buyer auction also in comparison with marginal pricing auction the iso payment is lowered by 38 8 when the newly developed modified rational buyer auction is utilized for future work it is recommended that the application of the modified rational buyer auction to joint dispatch of energy and ancillary services is investigated

dominant strategy implementation of bayesian incentive compatible allocation rules abstract a large literature on incentive mechanisms represents incentive constraints by the requirement that truthful reporting be a bayesian equilibrium this paper identifies mechanism design problems for which there is no loss in replacing bayesian incentive compatibility by the stronger requirement of dominant strategies we identify contexts where it is possible to change the transfer payments of an optimal bayesian mechanism so as to create dominant strategies and yet leave every participant s expected utility unchanged we also address the issue of multiple equilibria and unique implementation contexts where these results apply include auctions bilateral bargaining procurement contracting and intrafirm resource allocation

rfq auctions with supplier qualification screening we consider a manufacturer using a request for quotes rfq reverse auction in combination with supplier qualification screening to determine which qualified supplier will be awarded a contract supplier qualification screening is costly for the manufacturer for example involving reference checks financial audits and on site visits the manufacturer seeks to minimize its total procurement costs i e the contract payment plus qualification costs although suppliers can be qualified prior to the auction prequalification we allow the manufacturer to delay all or part of the qualification until after the auction postqualification using an optimal mechanism analysis we analytically explore the trade offs between varying levels of pre and postqualification although using postqualification causes the expected contract payment to increase bids from unqualified suppliers are discarded we find that standard industrial practices of prequalification can be improved upon by judicious use of postqualification particularly when supplier qualification screening is moderately expensive relative to the value of the contract to the manufacturer

efficient scoring rule in multipart procurement auctions for power systems reserve in this paper scoring rules are analyzed based on the german markets for procuring power system reserves for paying accepted offers the pay as bid settlement rule is applied each offer consists of a reserve capacity and two prices the capacity price is for holding the capacity in reserve and the energy price is for delivery in case of actual use a scoring rule is applied to value the two part price bids today this scoring rule is based on procuring the offers in the rank order of the capacity prices a first analysis of historic price data indicates efficiency problems due to this scoring rule this leads to proposing to value the two part price bids based on the ex post knowledge of the actual use of the procured reserves it is shown that in contrast to today s scoring rule this duration curve approach gives incentives to reveal the variable generation costs in the energy price bids

the economics of small business finance the roles of private equity and debt markets in the financial growth cycle abstract this article examines the economics of financing small business in private equity and debt markets firms are viewed through a financial growth cycle paradigm in which different capital structures are optimal at different points in the cycle we show the sources of small business finance and how capital structure varies with firm size and age the interconnectedness of small firm finance is discussed along with the impact of the macroeconomic environment we also analyze a number of research and policy issues review the literature and suggest topics for future research

privatization public offerings and political objectives this paper empirically analyses the political and economic objectives underlying privatization on the stock market particularly the factors of sips underpricing are explained and the study analyses whether the change of political parties in government play a role on the issue the paper has two main findings first larger initial returns occurred in the early stages of privatization second the change of government from left wing to right wing did not lead to significantly higher levels of underpricing the results show that governments are quite pragmatic with respect to underpricing maximizing proceeds from sips shows to be more important than ideological differences between parties in government

endogenous growth and the emergence of equity finance abstract this paper characterises the development of equity markets as a dynamic process that both influences and is influenced by the development of the real sector of the economy in overlapping generations economy borrowers seek funds to run risky investment projects by drawing up contracts which may take the form of either equity or debt issue in the presence of information asymmetry between borrowers and lenders the optimal contract is determined by trading off information dilution costs against bankruptcy costs significantly the equilibrium choice of contract depends on the state of the economy which in turn depends on the contracting regime based on this analysis the paper provides a theory of the joint determination of real and financial development with the ability to explain the emergence of a stock market along the path of real development

pricing energy and ancillary services in integrated market systems by an optimal power flow a detailed ac opf based formulation for procuring pricing and settling energy and ancillary service in simultaneous auctions by integrated market systems is presented the paper provides clear definitions of locational marginal prices for energy and ancillary service marginal prices in terms of lagrange multipliers the characteristics of the prices are analyzed especially when economic substitution among ancillary services is required the paper also evaluates the conditions under which opportunity costs are incurred to units that provide ancillary services it is particularly shown that the intuitive belief that the provision of regulation down service does not incur opportunity cost to the provider in general is not true

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

the pricing of best efforts new issues this paper offers an explanation for the underpricing of best efforts new issues and demonstrates that best efforts contracts allow issuers to use information from the market if investors obtain information which indicates that a project will not be profitable their demand will be low and the offering will be withdrawn if this information is costly investors will have to be compensated for its purchase through a lower offering price which means that issuers will have to underprice this result is consistent with the empirical observation that underpricing is considerably greater for best efforts than for firm commitment contracts the apparent underpricing of new issues is a long established puzzle which has recently received much attention most of this attention has been on the more common usually larger firm commitment offerings with far less focus on the other type of initial public offering ipo best efforts best efforts offerings account for about 1 3 of all ipos in the u s and they have some interesting characteristics one of these is that a best efforts offering may fail firms using this type of offering know that even after going through a long expensive registration process and revealing considerable amounts of information their offering may be cancelled 2 another interesting feature is that the degree of underpricing seems greater for best efforts than for firm commitment offerings the average initial return the percentage difference between the offering price and the first market price from 1977 1982 was 15 for firm commitment offerings and 48 for best efforts ritter 1987b the possibility that a best efforts offering may fail has typically been considered a disadvantage to the issuer but it may be an advantage the offering fails if the number of shares ordered does not reach the minimum level chosen by the issuer within a certain amount of time this essentially

dual sourcing in repeated procurement competitions the issue of maintaining competition over time in a repeated procurement setting is important for both government and private sector buyers the u s department of defense has experimented with splitting production quantities between two or more contractors in an effort to make government business more attractive for the private sector this paper analyzes the effectiveness of this strategy we find that in a two period model with production learning and entry costs dual sourcing even for the specific mechanism we consider in some cases reduces overall expected cost moreover if buyers are unable to commit to long term contracts or suppliers are unable to bid away anticipated gains the incentives to dual source are often stronger

bookbuilding vs fixed price an analysis of competing strategies for marketing ipos we compare two mechanisms for selling ipos the fixed price method and american book building when investors have correlated information and can observe each other s subscription decisions in this environment the fixed price method is a strategy that can create cascading demand alternatively an underwriter building a book aggregates investor information into the offer price we find that bookbuilding generates higher expected proceeds but exposes the issuer to greater uncertainty and that it provides the option to sell additional shares that are not underpriced on the margin

price stabilization in the market for new issues abstract this study examines price stabilization in new equity issues stabilizationtruncates the distribution of post issue prices at a floor price lowering the risk of adverse price moves and hence in a competitive dealer market reducing the bid ask spread using 1 523 nasdao traded firm commitment initial public offerings issued between 1982 and 1987 we find that spreads narrow when the market price is close to the offer price and stabilization is most likely moreover significant negative returns are documented after the hypothesized termination of stabilizing activities suggesting that stabilization and its cessation affect market prices

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

who benefits from secondary market price stabilization of iops abstract initial public offerings that receive secondary market price support from their underwriters are characterized by severely attenuated selling by small quantity presumably retail traders and more aggressive selling by large quantity presumably institutional traders the increase in institutional trading is concentrated in the first day of trading while the attenuation of retail trading persists this pattern exists in spite of the likelihood that retail investors receive relatively large initial allocations of fully priced stabilized offers thus the evidence is consistent with institutional investors being the primary beneficiaries of price stabilization efforts and with the use of penalty bids to constrain retail selling activity

reliability and reserve in competitive electricity market scheduling power systems are typically scheduled at least cost subject to operational and security constraints generally no account is taken of generator reliability when scheduling units also the security criteria which include reserve are usually deterministic in nature this paper proposes a method to consider generator reliability explicitly in the scheduling problem a competitive structure is proposed which includes a market for reserve this is formulated as an augmented lagrangian dual function and is solved using a new recurrent neural network the price for reserve is used along with the unit reliability to find a balance between the cost of reserve and the risk of not providing it

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

ipo pricing in hot market conditions who leaves money on the table this paper explores the impact of investor sentiment on ipo pricing using a model in which the aftermarket price of ipo shares depends on the information about the intrinsic value of the company and investor sentiment i show that ipos can be overpriced and still exhibit positive initial return a sample of recent french offerings with a fraction of the shares reserved for individual investors supports the predictions of the model individual investors demand is positively related to market conditions moreover large individual investors demand leads to high ipo prices large initial returns and poor long run performance the end of the nineties was one of the hottest ipo markets ever in this period both the number of initial public offerings and the level of initial returns have reached unprecedented peaks ritter documents that in 1999 and 2000 only 803 companies went public in the united states raising about 123 billion and leaving about 62 billion on the table in the form of initial returns periodically such periods of ipo euphoria occur these so called hot issue markets are characterized by high ipo volumes and high levels of initial return see ibbotson and jaffe 1975 and ritter 1984 as well as positive serial correlation of ipo initial returns and correlation between recent levels of initial return and current ipo volume surprisingly however pre ipo shareholders do not seem to be upset about leaving so much money on the table loughran and ritter 2002 explain this phenomenon by the fact that insiders of ipo companies consider not only the shares they sell in the ipo but also those they retain which benefit from the large initial price run up ljungqvist and wilhelm 2003 show that during the 1999 to 2000 period ipo companies were significantly different from usual

competitive procurement of ancillary services by an independent system operator this paper discusses the competitive procurement of ancillary services by an independent system operator iso the paper assumes the existence of an underlying market for energy and explains why this energy market must be accompanied by a market for ancillary services these services include operating reserves and automatic generation control agc both of which may require generators that are infra marginal in the energy market to choose between supplying energy or ancillary services the paper discusses the design of an auction for these services that has formed the basis for the california iso s ancillary services market the paper also discusses the real time dispatch of ancillary services

simultaneous clearing of energy and reserves in multi area markets under mixed pricing rules the integration of the spot electricity markets in europe shall lead to multi area power exchanges that will substitute the local markets in such scheme market prices are affected by physical e g network constraints yet they should sometimes follow regulatory policy rules which do not necessarily reflect or depend on physical characteristics in some cases complex pricing rules should be implemented which impose price discrimination for supply and demand entities within the same area the methodology presented in this paper enables the balancing of supply and demand in a multi area market considering energy and reserve bids under complex pricing rules which mix energy and reserve prices a demand bid corresponds to the whole cost a demand entity is willing to pay for its participation in the energy market including the cost for the procurement of the necessary reserves the approach attains price integration of energy and reserves markets simultaneous settlement of energy and reserves and significant decrease of the payments through the uplift accounts the main principle is the formulation of a mixed complementarity problem for the system equilibrium conditions in which supply and demand are associated to explicitly or implicitly defined prices which may be different even in the same zone

going public and the enrichment of a supportive network some evidence from italian initial public offerings past research on initial public offerings suggests that the reputation of a company positively affects the success of the offering success is usually measured in financial terms as if the essence of the operation lay only in the short term inflow of money in this paper we investigate important albeit often neglected implications of going public by combining evidence from a series of preliminary case studies taken from the results of a survey of 57 italian initial public offerings evidence from our research suggests that besides providing an important inflow of capital going public may actually improve the reputational and social capital of a company by increasing its visibility prestige and perceived trustworthiness therefore going public may be an important way to support entrepreneurial activity as it may expand and reinforce the network of relationships that offer access to external resources complementary skills and investment opportunities

seasonal darkness and ipo abstract this paper analyses the possible relationship between a particular natural phenomenon the shortening of light hours in autumn and a financial issue the level of underpricing recorded on the first day of listing by the companies subject to initial public offering ipo it analyses a sample of 3102 ipos in 32 countries in the period between january 1 2006 and december 31 2016 the empirical evidence supports the assumption that seasonal darkness when there is a lack of light has a positive impact on the raw initial returns of the ipos made during this period the results obtained confirm the previous studies aimed at investigating the phenomenon suggest a possible behavioral interpretation and in conclusion make a positive contribution deriving from the large sample size the consideration of different latitudes and the assumed perspective

energy and reserve market designs with explicit consideration to lost opportunity costs the primary goal of this work is to investigate the basic energy and reserve dispatch optimization cooptimization in the setting of a pool based market of particular interest is the modeling of lost opportunity cost introduced by reserve allocation the authors derive the marginal costs of energy and reserves under a variety of market designs they also analyze existence algorithm and multiplicity of optimal solutions the results of this study are used to support the reserve market design and implementation in iso new england control area

share issue privatizations as financial means to political and economic ends abstract this study examines how political and economic factors affect the offer price share allocation and other terms governments choose when they privatize state owned enterprises via a public share offering using a 59 country sample of 630 share issue privatizations sips with total proceeds of over 446 billion during the period 1977 1997 we find that governments consistently underprice sip offers tilt their share allocation patterns to favour domestic investors impose control restrictions on privatized firms and typically use fixed price offers rather than book building or competitive tender offers all to further political and economic policy objectives

is corporate bankruptcy efficient abstract auctions allocate resources to their highest valued uses yet bankruptcy does not use auctions instead judges determine a value and parcel out interests on the assumption that this valuation is correct errors inevitable in this process lead many persons to conclude that bankruptcy is inefficient this essay argues that the conclusion does not follow the costs of error in valuation may be less than the cost of conducting an auction legal rules endure because they are efficient or because they transfer wealth transfers are an implausible explanation of the current bankruptcy regime leaving efficiency as the prevailing explanation

why do ipo underwriters allocate extra shares when they expect to buy them back i argue that overallocation is used as a marketing strategy to increase the offer price and aftermarket price of an initial public offering ipo i show that when there is weak demand it can be optimal for the underwriter to oversell an issue and take a naked short position the issuing firm benefits from a higher expected offer price this is in spite of the fact that in equilibrium allocating more shares when there is weak demand requires greater underpricing when there is strong demand

an empirical examination of models of contract choice in initial public offerings this study examines initial public offering contract choice decisions in best efforts offerings minimum sales constraints allow issuers to precommit to withdraw the offering if a fixed minimum number of shares is not sold in firm commitment offerings the over allotment option allows the underwriter to increase sales when demand is strong two theories of contract choice benveniste and spindt 1989 and ritter s 1987 extension of rock 1986 offer predictions about the role of these contract features we find that the 1977 1982 evidence is consistent with benveniste and spindt 1989 the evidence is less supportive of the ritter 1987 hypothesis that minimum sales constraints serve to reduce the winner s curse of the riskier issuers

optimal active reactive power dispatch under competition via bilevel programming this paper proposes an active reactive power dispatch procedure that is expressed via a bilevel optimization problem whose upper and lower level criteria are respectively the minimum opportunity cost and minimum offered price of active power it analyzes the impact of minimizing such criteria on system operation and it investigates the behavior of marginal prices and opportunity costs and their use in mechanisms to compensate generators for power provision the bilevel problem is solved using a version of interior point methods derived for mathematical programs with complementarity constraints results obtained with three test systems are analyzed

stabilization syndication and pricing of ipos we argue that in the after market trading of an ipo the underwriting syndicate by standing ready to buy back shares at the offer price price stabilization compensates uninformed investors ex post for the adverse selection cost they face in bidding for ipos this domi nates ex ante compensation by underpricing the reason is that stabilization exploits ex post information about investor demand whereas underpricing must be based on ex ante infor mation however liquidity and syndication costs constrain the use of stabilization which in equilibrium generates some underpricing as well we develop a model that formalizes this intuition and generates several empirical implications

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

industrial structure in the eurocredit underwriting market abstract while the complexity of underwriting syndicates is well known there has been very little empirical analysis of syndicate structure the short term eurocredit market is a promising market for the analysis of industrial structure because underwriting syndicates generally come in a two tier structure the structures of syndicates in this market are analyzed here empirically our evidence suggests that the lead managers in these syndicates seem to be recruited primarily for paycosts of risk bearing and sharing while the regular managers appear to be recruited primarily for the purpose of dealing with expanded underwriting distribution risks held constant contract parameters that affect syndicate size and structure are examined in detail for various instruments

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

public information ipo price formation and long run returns japanese evidence the price formation process of jasdaq ipos is more transparent than in the united states the transparency facilitates analysis of important issues in the ipo literature why offer prices only partially adjust to public information and adjust more fully to negative information and why adjustments are related to initial returns the evidence indicates that early price information conveys the underwriter s commitment to compensate investors for acquiring and or disclosing information offer prices reflect pre ipo market values of public companies and implicit agreements between underwriters and issuers that originate well before the offering underadjustment of offer prices is substantially reversed in the aftermarket copyright c 2009 the american finance association

bank lending and initial public offerings abstract in this paper we test the hypothesis that banking relations are a signal about firm value we argue that bank processing of asymmetric information and external monitoring of corporate activities reduce the ex ante uncertainty of investors about firm value we demonstrate that the existence of bank debt and or lines of credit lowers the expected initial return associated with initial public offerings the empirical results are robust with respect to the inclusion of variables which reflect other mechanisms that can ameliorate ex ante uncertainty our work adds to the body of evidence that supports the hypothesis that intermediaries provide valuable asset services to corporate borrowers

evaluating the costs of raising capital through an initial public offering abstract this article provides an empirical analysis of the costs of going public based on a sample of 1852 offerings during 1977 1987 the sample includes 1556 firm commitment issues and 296 best efforts issues three components of the cost of going public are examined 1 direct cash expenses such as legal and accounting costs 2 investment bank s commission and 3 costs resulting from the investment bank practice of pricing initial public offerings below their market values all of the cost components are significantly higher for best efforts offerings than for firm commitments in fact best efforts offerings are more than three times as expensive on a percentage basis than are firm commitments in addition there are marked economies of scale in the process of going public the total costs of going public were 40 of gross proceeds for the smallest firm commitment issues but only 15 for the largest in dollar terms we estimate that a typical small firm commitment offering of 2 5 million will cost approximately 800 000 32 of gross proceeds whereas a large issue of 25 million will cost approximately 4 million 16 of gross proceeds the issuing firm s earnings as well as the type of investment bank underwriting the issue were also important cost determinants the primary implication of our results for entrepreneurs is that it is quite expensive to attempt a public offering prematurely the marginal issuer with a small capital requirement and a poor earnings history will be at a large cost disadvantage to more established firms more specifically we advise that the firm have capital requirements of at least 10 million and positive operating income before attempting a public offering postponing a public offering until the issue will be well received by investors and investment banks is likely to be worth the wait until that time alternative sources of funds will be more cost effective

the stock market as a source of capital some lessons from initial public offerings in italy abstract this paper complements the analysis of the decision to go public contained in pagano et al 1995 we compare a larger set of italian initial public offerings including holding companies with size matched private companies even in this larger sample we find evidence that 1 i the new equity capital raised upon listing is not used to finance subsequent investment and growth 2 ii going public reduces the cost of credit 3 iii it is often associated with equity sales by controlling shareholders and is followed by a higher turnover of control than for other companies a novel finding is that the funds raised are used to purchase stakes in other companies and other financial assets

the clustering of ipo gross spreads international evidence patterns of clustering in ipo gross spreads can be identified not only in the u s but also in many other markets across the world the evidence indicates however that these clustering patterns are not necessarily collusive clustering is widespread in many countries with low gross spreads in fact the amount of clustering observed is negatively related to the gross spread level of a country additionally an analysis of abnormal gross spreads following hansen 2001 indicates that few clusters contain abnormal positive surpluses

litigation risk intermediation and the underpricing of initial public offerings we formally examine the role of litigation risk in initial public offering ipo pricing the underwriter s pricing decision trades off current revenue against expected future litigation costs both of which are increasing in the ipo price given a time consistency constraint and rational expectations on the part of investors however the standard litigation risk argument does not lead to equilibrium underpricing we develop a richer model that provides sufficient conditions under which there is equilibrium underpricing the issuer s choice of employing an underwriter versus floating the ipo on its own is examined and various testable implications of the model are developed article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

venture capitalist certification in initial public offerings this paper provides support for the certification role of venture capitalists in initial public offerings consistent with the certification hypothesis a comparison of venture capital backed ipos with a control sample of nonventure capital backed ipos from 1983 through 1987 matched as closely as possible by industry and offering size indicates that venture capital backing results in significantly lower initial returns and gross spreads in effect the presence of venture capitalists in the issuing firms serves to lower the total costs of going public and to maximize the net proceeds to the offering firm in addition we document that venture capitalists retain a significant portion of their holdings in the firm after the ipo the ability of third party specialists to certify the value of securities issued by relatively unknown firms in capital markets that are characterized by asymmetric information between corporate insiders and public investors has attracted much academic interest in recent years several authors including james 1990 blackwell marr and spivey 1990 and barry muscarella peavy and vetsuypens 1991 have developed and tested models based at least in part on the formal certification hypothesis presented in booth and smith 1986 a related body of work represented by deangelo 1981 beatty and ritter 1986 titman and trueman 1986 johnson and miller 1988 carter 1990 simon 1990 and carter and manaster 1990 has examined how investment bankers and auditors help resolve the asymmetric information inherent in the initial public offering ipo process in this paper we examine whether the presence of venture capitalists as investors in a firm going public can certify that the offering price of the issue reflects all available and relevant inside information we hypothesize that venture capitalists can perform this function that it will be an economically

localized reactive power markets using the concept of voltage control areas in this paper we present the design of a localized competitive market for reactive power ancillary services at the level of individual voltage control areas the concept of electrical distance has been used to identify the different voltage control areas within a power system the proposed reactive power market is settled on uniform price auction using a modified optimal power flow model uniform prices for various components of reactive power service are obtained for each voltage control area in the study cases described in the paper we examine whether such a localized reactive power market is more desirable than a common system wide reactive power market