the world market risk premium and u s macroeconomic announcements abstract conditional tests of the international capm in previous studies e g harvey 1991 help identify predictability but not causality in this paper we take an event study approach to examine if the world market risk premium is particularly higher on prescheduled us macroeconomic announcement days empirically we apply the savor and wilson 2014 methodology to daily us stocks as well as foreign stocks cross listed in the us our findings suggest that there is a causal relationship from the state of the global economy to the world market risk premium

the winner s curse problem interest costs and the underpricing of initial public offerings this paper provides the first direct test of the winner s curse problem proposed by k rock 1986 as an explanation to the underpricing of initial public offerings moreover it tests the proposition that the underpricing of initial public offerings in the united kingdom is due to the combined effect of the winner s curse problem and the particular nature of the settlement mechanism applicable in the british new issues market the evidence demonstrates that when these two factors winner s curse problems and interest rate costs are taken into consideration the emerging first day net returns are on average markedly lower than the level of actual underpricing consistently superior performance can only be achieved by predicting the market s response to the individual new issue the results however indicate that such predictive ability is largely unattainable copyright 1990 by royal economic society

discounting and underpricing in seasoned equity offers abstract expected discounting in seasoned equity offers is a cost of uncertainty about firm value marketing new shares and acquiring information that raises the offer price stockholders incorporate predictable discounting in stock prices when equity offers are first announced the surprise component of discounting reflecting the lead bank s final adjustment to the offer price releases information that often causes economically large price swings on the offer day disparities between the issuer s closing price and the price suggested in the lead bank s final order book are a primary source of information the discount surprise appears to be used by lead banks to update capital suppliers with that eleventh hour information before they commit their funds

why initial public offerings are underpriced evidence from switzerland abstract the underpricing of initial public offerings is a well documented phenomenon for almost every equity market that has been examined in switzerland for a sample of 42 stocks that were issued in the market between 1983 and 1989 a 35 8 percent average initial return between the offering price and the closing price on the first trading day is found in switzerland the excess returns from offering price persist for at least three years however if the purchase is made at the first day s closing price then the three year returns are negative the paper discusses special institutional settings in the swiss stock market and provides some explanations implying that underpricing can be regarded as an equilibrium situation

ipos signalling effects for speculative stock detection evidence from the stock exchange of thailand abstractusing a unique data set from the thai stock market about the so called turnover list tol of speculative stocks spanning the period 2004 2012 we investigate and provide new evidence on the relationship between ipos pricing effects and subsequent classification as speculative investments to be more specific we examine the signalling effects for the detection of speculative stocks in relation to the degree of their prior ipos underpricing we also employ the market feedback hypothesis to investigate this signalling process our results reveal a significant positive relationship between the magnitudes of the ipo underpricing and the probability of an ipo firm being classified officially as speculative on the tol furthermore we find that a 6 month abnormal return after going public increases the probability of speculative dealing in the ipos next we consider all listed firms in the thai stock market and highlight the role of both abnormal return and trading volume in the transmission of pr

international asset pricing and portfolio diversification with time varying risk we test the conditional capital asset pricing model capm for the world s eight largest equity markets using a parsimonious generalized autoregressive conditional heteroskedasticity garch parameterization our methodology can be applied simultaneously to many assets and at the same time accommodate general dynamics of the conditional moments the evidence supports most of the pricing restrictions of the model but some of the variation in risk adjusted excess returns remains predictable during periods of high interest rates our estimates indicate that although severe market declines are contagious the expected gains from international diversification for a u s investor average 2 11 percent per year and have not significantly declined over the last two decades

litigation risk and ipo underpricing abstract we examine the relation between risk and ipo underpricing and test two aspects of the litigation risk hypothesis 1 firms with higher litigation risk underprice their ipos by a greater amount as a form of insurance insurance effect and 2 higher underpricing lowers expected litigation costs deterrence effect to adjust for the endogeneity bias in previous studies we use a simultaneous equation framework evidence provides support for both aspects of the litigation risk hypothesis

stock markets banks and growth panel evidence this paper investigates the impact of stock markets and banks on economic growth using a panel data set for the period 1976 98 and applying recent gmm techniques developed for dynamic panels on balance we find that stock markets and banks positively influence economic growth and these findings are not due to potential biases induced by simultaneity omitted variables or unobserved country specific effects

what a difference a month makes stock analyst valuations following initial public offerings we examine how analysts establish target prices for ipo firms and whether comparable firms used to support target prices are helpful in explaining ipo offer prices during the bubble period of 1999 to 2000 the average offer price was set at a discount relative to comparable firm valuations in contrast the average offer price was set at a small premium relative to comparables in the pre bubble period this shift appears to hold even after controlling for the differences in the types of firms going public during the bubble period moreover target prices of ipo firms were set at a higher premium relative to comparables during the bubble period while our results suggest that underwriters systematically dis counted offer prices during the bubble period an alternative explanation is that the shift arose because underwriters and analysts faced different incentives and legal exposures dur ing the bubble period

getting off to a good start the effects of upper echelon affiliations on underwriter prestige the initial public offering ipo is one of the most critical events in the lifetime of a young firm prior research has shown that firms tend to have successful ipos if they go public with the endorsement of a prestigious lead underwriter this paper examines the antecedents to receiving endorsement by a prestigious underwriter and links this to the experience base of a firm s upper echelon we theorize that the amount and type of upper echelon experience serve as important symbols of a young firm s legitimacy to critical outsiders we introduce a typology of upper echelon experience that distinguishes between upper echelon upstream horizontal and downstream employment based affiliations and suggest that these different types of upper echelon affiliations allay different types of endorser concerns regarding firm legitimacy affecting the endorsement process further we theorize that the relationships between upper echelon experience and investment bank prestige will be moderated by technological uncertainty we test our assertions on a comprehensive sample of public and private biotechnology firms that were founded between 1961 and 1994 and that went public between 1979 and 1996 analyses of the five year career histories of the over 3 200 executives and directors that make up the upper echelons of these firms show that firms with upper echelons with affiliations with prominent downstream organizations i e pharmaceutical and or healthcare companies and with prominent horizontal organizations i e biotechnology companies are more likely to attract the endorsement of a prestigious investment bank we also find that the greater the range of upper echelon affiliations across the categories of upstream horizontal and downstream affiliations the more prestigious the firm s lead underwriter we also find that these latter results are moderated by technological uncertainty the present research has implications for the study of organizational legitimacy interorganizational endorsements and entrepreneurship

speculative prices and popular models t he rational expectations revolution in economics was born of the recognition that the expectations people hold for future economic variables are fundamental to their behavior thus our economists economic models require their those who make up the economy economic models models which they use to generate their expectations the key idea of rational expectations models is to collapse the two models into one to assume that people know or behave as if they know the true model that describes the economy this idea allows economists to construct simple and elegant models of the economy models that are appealing theoretically and that can be studied without collecting any data about the models in the minds of economic actors the problem with the rational expectations models is that collapsing the two kinds of models into one is a gross oversimplification obviously the popular models the models that are used by the broad masses of economic actors to form their expectations are not the same as those held by economists once one accepts the difference economic modelling cannot proceed without collecting data on the popular models themselves this paper reports on such a data collection effort on popular models using questionnaire survey methods with the purpose of understanding speculative markets i will report here on my research to understand the u s stock market crash of october 1987 research fumiko konya yoshiro tsutsui and i undertook to understand the japanese stock market crash of october 1987 research karl case and i undertook to understand recent real estate booms and research john pound and i undertook to understand the periodic hot markets for initial public offerings ipo s of common stock

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

do momentum based strategies still work in foreign currency markets this paper examines the performance of momentum trading strategies in foreign exchange markets we find the well documented profitability of momentum strategies during the 1970s and the 1980s has continued throughout the 1990s our approach and findings are insensitive to the specification of the trading rule and the base currency for analysis finally we show that the performance is not due to a time varying risk premium but rather depends on the underlying autocorrelation structure of the currency returns in sum the results lend further support to prior momentum studies on equities the profitability to momentum based strategies holds for currencies as well

the optimal spread and offering price for underwritten securities abstract the paper develops the net proceeds maximization theory explaining how the spread and offering price are determined in all underwritten offerings in the u s the theory yields solutions for the optimal spread and offering price for all underwritten securities and it yields comparative statics that explain the cross sectional variation in actual spreads and initial returns across different types of underwritten securities the theory also suggests two alternative explanations to the ones offered by chen and ritter j finance 55 2000 1105 for the clustering of unseasoned equity offerings spreads at 7

an empirical investigation of international asset pricing we investigate several asset pricing models in an international setting we use data on a large number of assets traded in the united states japan the united kingdom and france the models together with the hypothesis of capital market integration imply testable restrictions on multivariate regressions relating asset returns to various benchmark portfolios we find that multifactor models tend to outperform single index models in both domestic and international forms especially in their ability to explain seasonality in asset returns we also find that the behavior of the models is affected by changes in the regulatory environment in international markets

the relationship between athletic participation and academic performance evidence from ncaa division iii this paper examines athletes grades and graduation rates at an ncaa division iii institution thirty seven per cent of all college athletes compete in division iii yet this group has received little attention in the literature nontransfer student athletes have higher gpas than nonathletes while transfer student athletes have grades similar to nonathletes graduation rates are higher for athletes thus athletic participation does not impair students academic performance

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

testing the unbiased forward exchange rate hypothesis using a markov switching model and instrumental variables this paper develops a model for the forward and spot exchange rate which allows for the presence of a markov switching risk premium in the forward market and considers the issue of testing the unbiased forward exchange rate ufer hypothesis using us uk data it is shown that the ufer hypothesis cannot be rejected provided that instrumental variables are used to account for within regime correlation between explanatory variables and disturbances in the markov switching model on which the test is based copyright 2005 john wiley sons ltd

resolving the exposure puzzle the many facets of exchange rate exposure theory predicts sizeable exchange rate fx exposure for many firms however empirical research has not documented such exposures to examine this discrepancy we extend prior theoretical results to model a global firm s fx exposure and show empirically that firms pass through part of currency changes to customers and utilize both operational and financial hedges for a typical sample firm pass through and operational hedging each reduce exposure by 10 15 financial hedging with foreign debt and to a lesser extent fx derivatives decreases exposure by about 40 the combination of these factors reduces fx exposures to observed levels

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

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

tests of international capm with time varying covariances we perform maximum likelihood estimation of a model of international asset pricing based on capm we test the restrictions imposed by capm against a more general asset pricing model the betas in our capm vary over time as the supplies of assets change and as the conditional covariances or returns on those assets change we let the covariances change over time as a function of macroeconomic data and an alternative model allows the covariances to follow a multivariate arch process we also can identify a modified capm model with measurement error we find that the estimated capm performs much better when variances are not constant over time nonetheless capm is rejected in favour of the lessrestricted model of asset pricing

currency risk premia and uncovered interest parity in the international capm abstract zero investment uncovered interest parity uip portfolio positions provide perfect factor mimicking portfolios for currency risk in the international capm context their returns are the currency risk premia since the uip positions on average provide low returns the currency risk premia must be low so that currency risk appears not to be priced in an unconditional model however previous research has shown that uip returns are predictable and may be quite substantial conditionally we use this observation to generate a specific conditional version of the international capm a gmm approach shows that the conditional model performs well while the unconditional international capm is marginally rejected the paper thus argues that previous rejections of the international capm stem from the fact that currency risk premia are by nature low over extended periods of time and do not provide evidence against the international capm

combining mean reversion and momentum trading strategies in foreign exchange markets abstract the literature on equity markets documents the existence of mean reversion and momentum phenomena researchers in foreign exchange markets find that foreign exchange rates also display behaviors akin to momentum and mean reversion this paper implements a trading strategy combining mean reversion and momentum in foreign exchange markets the strategy was originally designed for equity markets but it also generates abnormal returns when applied to uncovered interest parity deviations for five countries i find that the pattern for the positions thus created in the foreign exchange markets is qualitatively similar to that found in the equity markets quantitatively this strategy performs better in foreign exchange markets than in equity markets also it outperforms traditional foreign exchange trading strategies such as carry trades and moving average rules

a new approach to international arbitrage pricing this paper uses a nonlinear arbitrage pricing model a conditional linear model and an unconditional linear model to price international equities bonds and forward currency contracts unlike linear models the nonlinear arbitrage pricing model requires no restrictions on the payoff space allowing it to price payoffs of options forward contracts and other derivative securities only the nonlinear arbitragepricing model does an adequate job of explaining the time series behavior of a cross section of international returns the idea that a few relevant state variables explain expected returns is the main driving force of the seminal papers of merton 1973 and ross 1976 these seminal ideas have been extended to the pricing of international assets by ikeda 1991 ross and walsh 1983 solnik 1974 1983 and stulz 1981 among others the key implication of these arbitrage pricing models is that only risks related to these factors state variables are relevant in determining asset prices testable implications of these international asset pricing models have been derived either by placing restrictions on the payoff structure i e payoffs are linear in factors as in ikeda 1991 ross and walsh 1983 and solnik 1983 or on the joint distributions of the payoffs and state variables as in constantinides 1989 these restrictions lead to the testable implication that expected asset returns are linear in the conditional covariances with the factor payoffs in what follows we refer to these models as linear arbitrage models or linear models

primary versus secondary pricing of high yield bonds previous research has found systematic underpricing of newly floated securities vis a vis secondary market levels this conclusion is based on the observation that primary issues provide superior risk adjusted returns in the period immediately following issuance those returns however are not known at the time of pricing to gauge whether a new issue is offered at a premium or a concession to the secondary market investors must use standard valuation benchmarks in the case of high yield bonds an analysis based on agency ratings and yields to maturity indicates that new issues are priced richer than seasoned issues in some periods and cheaper in other periods using regression analysis the authors model the magnitude of the premium or concession prevailing in a given period the regressions explain 64 percent of the variance in the primary secondary yield spread through proxies for supply demand and liquidity of the high yield sector

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

investment bank reputation information production and financial intermediation we model reputation acquisition by investment banks in the equity market entrepreneurs sell shares in an asymmetrically informed equity market either directly or using an investment bank investment banks who interact repeatedly with the equity market evaluate entrepreneurs projects and report to investors in return for a fee setting strict evaluation standards unobservable to investors is costly for investment banks inducing moral hazard investment banks credibility therefore depends on their equity marketing history investment banks evaluation standards their reputations underwriter compensation the market value of equity sold and entrepreneurs choice between underwritten and nonunderwritten equity issues emerge endogenously

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

ipo mechanisms monitoring and ownership structure1 this paper analyzes the e ect of di erent ipo mechanisms on the structure of share ownership and explores the role of underpricing and rationing in determining investors shareholdings we focus on the agency problem that results when large institutions are the only investors capable of monitoring the firm whereas small shareholders free ride on these activities the major conclusion is that some well known aspects of ipos may be explained as rational responses by the issuer to the existence of regulatory constraints in public capital markets there is a two stage o ering mechanism in which the investment banker acting in the interests of the issuer optimally rations the allotment of shares to small investors in order to capture the benefits associated with better monitoring by institutions importantly in our model the existence of underpricing and oversubscription is an indication that the issuer has received a higher ex ante price than would have been obtained through a competitive walrasian type o ering process 1998 elsevier science s a all rights reserved jel classification g24 g32 g38

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

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

investment banker reputation and two stage combination carve outs and spin offs abstract this study examines whether investment banker reputation impacts the initial period returns of two stage combinations carve outs followed by spin offs all prior literature regarding investment banker reputation is based on single stage events ipos an analysis is conducted of all completed two stage carve outs spin offs from 1981 to 2002 findings indicate that underwriters for two stage combinations retain their reputation in contrast with the single stage findings of carter et al carter r b dark f h piwowar m s 2002 ipos and underwriter reputation redeeming the value of reputation working paper iowa state university that investment bankers redeemed cashed in their reputation also this study finds that the carter et al reputation factors dominate the loughran and ritter loughran t ritter j r 2002 why don t issuers get upset about leaving money on the table in ipos the review of financial studies 15 2 413 443 reputation factors

underwriter price support and the ipo underpricing puzzle abstract this paper reassesses the apparent systematic underpricing of initial public offerings ipos investigation of the distribution of initial returns following ipos shows that positive mean initial returns may reflect the existence of a partially unobserved left negative tail moreover most ipos with zero one day returns subsequently fall in price suggesting that underwriter price support may account for the skewed distribution and hence the phenomenon of positive average initial ipo returns even if offering prices are set at expected market value this paper thus challenges the presumption underlying previous research that positive average initial ipo returns result primarily from deliberate underpricing

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

differential information and security market equilibrium we propose a simple model of equilibrium asset pricing in which there are differences in the amounts of information available for developing inferences about the returns parame ters of alternative securities in contrast with earlier work we show that parameter uncer tainty or estimation risk can have an effect upon market equilibrium under reasonable conditions securities for which there is relatively little information are shown to have relatively higher systematic risk when that risk is properly measured ceteris paribus the initially very limited model is shown to be robust with respect to relaxation of a number of its principal assumptions we provide theoretical support for the empirical examination of at least three proxies for relative information period of listing number of security returns observations available and divergence of analyst opinion

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

which ties matter when the contingent effects of interorganizational partnerships on ipo success this paper investigates the contingent value of interorganizational relationships at the time of a young firm s initial public offering ipo we compare the signaling value to young firms of having ties with two types of interorganizational partnerships endorsement relationships such as those with venture capital firms and investment banks and strategic alliance partnerships we propose that under different equity market conditions potential investors in an issuing firm attend to different types of uncertainty attention to these different types of uncertainty affects investors perceptions of the relative value of a young firm s different kinds of endorsements and partnerships and hence ipo success results from a sample of young biotechnology firms show that ties to prominent venture capital firms are particularly beneficial to ipo success during cold markets while ties to prominent investment banks are particularly beneficial to ipo success during hot markets a firm s strategic alliances with major pharmaceutical health care firms did not have such contingent effects implications for understanding the contingent value of interorganizational ties are discussed copyright 2003 john wiley sons ltd

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

you are known by the directors you keep reputable directors as a signaling mechanism for young firms in this paper we develop an analytical model of outside directors signaling role a role that is especially important for entrepreneurial firms we formally demonstrate that in the face of a market failure in which stakeholders refuse to align themselves with new firms high quality new ventures may be able to credibly signal their type by appointing reputable directors to their boards however this option is not universally feasible both directors reputations and the quality of their information determine the effectiveness of this strategy in contrast to earlier adverse selection models we demonstrate that when the middlemen directors have incomplete information on firm quality bad and good firms can coexist in equilibrium in this equilibrium the quality of the directors information determines the mix of good and bad firms in the population of surviving firms avenues for future research and normative implications for practitioners are discussed

why does the law matter investor protection and its effects on investment finance and growth investor protection is associated with greater investment sensitivity to q and lower investment sensitivity to cash flow finance plays a role in causing these effects in countries with strong investor protection external finance increases more strongly with q and declines more strongly with cash flow we further find that q and cash flow sensitivities are associated with ex post investment efficiency investment predicts growth and profits more strongly in countries with greater q sensitivities and lower cash flow sensitivities the paper s findings are broadly consistent with investor protection promoting accurate share prices reducing financial constraints and encouraging efficient investment in this paper we study how investor protection affects firm level resource allocations our analyses center on two hypotheses our first hypothesis is that stock prices more strongly predict both investment and external finance in countries with stronger investor protection laws tobin 1969 shows in a frictionless setting that marginal q predicts real investment in this framework high marginal q firms should all else equal also raise the most capital as these firms invest more we use average q q as a proxy for marginal q and test whether investment and external finance are more sensitive to q in countries with stronger investor protection laws

uncovered interest parity it works but not for long abstract if an investor borrows in a low interest currency and invests in a high interest currency the interest differential accrues in a lumpy manner formally just like the dividend payments on a stock the investor will receive the interest differential discretely at the point when a position is rolled over from one day to the next a position that is not held open overnight receives no interest differential because intradaily interest rates are zero using a large data set of intradaily exchange rate data we run uncovered interest parity uip regressions over different short time intervals taking careful account of the settlement rules in the spot foreign exchange market we find results that are supportive of the uncovered interest parity hypothesis over very short windows of data that span the time of the discrete interest payment however adding even a few hours to the span of the window destroys the positive uncovered interest parity results

the cost of capital in international financial markets local or global abstract this paper analyzes to what extent international and domestic asset pricing models lead to a different estimate of the cost of capital for an individual firm under the maintained assumption of perfect international financial integration we distinguish between i the multifactor solnik sercu icapm including both the global market portfolio and exchange rate risk premia and ii the single factor domestic capm we use a sample of 3 293 stocks from nine countries in the period 1980 1999 the domestic capm yields a significantly different estimate of the cost of capital from the multifactor icapm for only five percent of the firms in our sample we attribute the close correspondence between local and global pricing to strong country factors in individual stock returns which are probably due to lack of real integration our results reinforce the home bias puzzle

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

commitment and satisfaction in the classroom and on the field evidence from a division i liberal arts college within higher education there has been a persistent concern that student athlete commitments to their athletic activities are detrimental to their academic studies we collect data on student athl

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

equity issue specific versus broad regulatory protections against expropriation risk international evidence from seos abstract we compare non issue specific broad investor protections against expropriation by firm s insiders with regulations that specifically protect investors of new equity issues issue specific since in nation regulations rarely change and are homogenous for all firms it is difficult to compare issue and non issue specific investor protection mechanisms in country specific studies we utilize cross country differences in regulations to study the relative importance of issue specific and broad regulatory protections using data on seasoned equity offerings seo we find that seo underpricing is related to broad protections in particular seo underpricing is negatively positively related with the strength of ex post ex ante anti self dealing laws independent of broad protections seo underpricing is unaffected by issue specific investor protections that is neither by disclosure requirements imposed on equity issuers nor by equity issue specific liability rights conferred on investors interactions between broad protections and issue specific protections indicate issue specific protections reduce seo underpricing only in countries with strong broad protections

the pricing of initial public offerings a dynamic model with information production this paper presents an information theoretic model of ipo pricing in which insiders sell stock in both the ipo and the secondary market have private information about their firm s prospects and outsiders may engage in costly information production about the firm high value firms knowing they are going to pool with low value firms induce outsiders to engage in information production by underpricing which compensates outsiders for the cost of producing information the information is reflected in the secondary market price of equity giving a higher expected stock price for high value firms

initial performance of new issues of shares in malaysia this paper presents the levels of under pricing for new issues in a developing country malaysia over a more recent period january 1990 december 1998 than reported in prior studies three types of new issues were examined namely public issue offer for sale and combination or hybrid of offer for sale and public issue comparisons of initial return between types of new issues and between different board of listing were made the results of independent t tests for difference in mean initial returns indicate that in general there are significant differences in mean initial returns between types of new issues and between boards of listing the results of step wise regression reveal that on average only over subscription ratio contributes significantly to the initial returns however caution should be taken when interpreting the models formed because the durbin watson rest indicate that some models are not free from problem of auto correlation of the residuals

the effect of individual uncertainty on the specificity of human capital empirical evidence from career developments in professional soccer this study looks at careers in professional soccer to investigate the determinants of human capital hc specificity inspired by labour market research we formulate three hypotheses on how uncertainty about the usefulness of individuals more productive specific skills affects their investment in more flexible general skills the empirical analysis is based on unique panel data on school grades soccer evaluations and sociodemographic characteristics of 90 elite players from the youth academy of a german bundesliga club we find that senior and long serving players who are comparably certain that their soccer specific capital will be sufficient to pursue a lucrative professional career invest less in general hc at school expected soccer performance in contrast has a counterintuitive positive effect our results expand knowledge on the factors influencing hc specificity from the macro to the subject level and highlight practical implications for institutions that train gifted individuals