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

bank reserve requirements as an impediment to signaling bank reserve requirements as an impediment to signaling effective legal reserve requirements may hamper the private capital market s ability to price bank deposits in the model developed here the market has less information about bank assets than the banks have and a bank can therefore signal its superior information through its choice of excess reserves mandatory reserves can inhibit such signaling and therefore result in inefficient deposit pricing i introduction although the basic of fractional reserve banking were explained by edgeworth 1888 the rationale for legal reserve requirements as well as the details of their design have continued to evolve and the impetus for reform has been gathering momentum in recent years the time honored liquidity motivations as well as the more contemporary monetary control consideration have been widely debated and while the latter remains popular increasing skepticism has been expressed by benston 1978 greenbaum and kanatas 1982 laurent 1979 1981 robertson and phillips 1974 and starleaf 1975 among others like many of these papers this one questions the benefits of reserve requirements whereas most dispute their value as a monetary policy instruments however a new argument presented here shows that reserve requirements may subvert efficient deposit pricing and thereby aggravate asset quality and bank solvency problems the argument relates to the recent proposal that the private capital markets should play an expanded role in monitoring the exposure of banks we examine the potential of a commercial bank s excess reserves to signal asset quality in an environment without deposit insurance the results apply so long as deposit insurance remains incomplete and where the risk of each bank s assets is a priori unknown to all except the bank in such a setting the efficient pricing of deposit depends on a depositor s ability to ascertain the risk characteristics of the bank s assets it is shown that excess reserves can signal the unknown risk and thus resolve the informational asymmetry the ability to signal using excess reserves varies inversely however with reserve requirements thus reserve requirements may impede the ability of excess reserves to inform market participants reserve requirements are likely to impede signaling when i loan rates and reserve requirements are high or ii reserve requirements are low but a bank s deposit base is large reserve requirements are unlikely to impede signaling when banks are similar in their asset characteristics the underlying intuition is discussed in section iii excess reserves based signaling may be important because of its potential in facilitating the private sector s monitoring of banks we show that any effort to expand the private market s monitoring of bank asset quality through more accurate deposit pricing presupposes an appropriate regulatory milieu exposing large depositors to losses may be a precondition for expanding the role of the private capital markets but this analysis indicates that reserve requirements and or inappropriate discount window pricing can subvert such efforts the potential for conflict between the federal reserve focusing on monetary policy and the deposit insurers seeking to mitigate their monitoring burden and exposure is palpable thus the model clarifies the conditions necessary to engage the private market in monitoring bank asset quality through deposit pricing these requirements are formidable and the interdependence of regulatory constraints used for monetary policy and bank soundness purposes could frustrate programs based on piecemeal reform the model posits a risk neutral two period economy where each bank issues deposits and makes risky loans at the outset although asset quality varies across bank the choice of assets is not endogenous this is an important simplification since in general a bank s asset choice will impinge on the posited signaling problem

accounting for external costs in a study of a swedish district heating system an assessment of environmental policies sweden has historically had strict emission control by implementation of economic policy instruments with the aim of internalising the external costs of air pollution this study aims to evaluate how well current swedish policy instruments reflect the environmental costs associated with heat generation in several district heating dh plants in the dh system of goteborg furthermore it aims to simulate and evaluate the operation of the dh system based on its social cost effectiveness which takes into account the dh system s private and external costs non internalised environmental costs the study shows that the economic policy instruments do not fully internalise all external costs whereas for certain technologies the costs in terms of taxes emission permits environmental fees etc are higher than the environmental costs caused by the pollutants given the environmental cost estimates used in the study the simulation results show that the deviating internalisation of external costs affects the economic ranking of the different plants within the studied dh system the estimated loss in social cost effectiveness of the operation of the dh system of goteborg is noticable but relatively small if compared to the variable heat generation costs for most of the studied dh plants c 2010 elsevier ltd all rights reserved

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

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

an empirical investigation of the determinants of discount window borrowing a disaggregate analysis abstract this article investigates the individual demand for discount window credit by employing a cross sectional time series database of commercial banks the analysis employs a simple linear model that accounts for the latent nature of individual borrowing our findings reveal that borrowing is positively correlated with the federal funds discount rate spread large borrowers are shown to have a stronger correlation between borrowing and the federal funds spread in addition we find that the nonpriee mechanism is more binding on large banks that avoid contiguous use of the discount facility or defer their visit in the expectation that interest rates will increase in the near future

ipo underpricing in supply and demand framework evidence from a market of retailers abstracthow do supply demand and allocation of shares on the underpricing of initial public offerings ipos affect the shape and steepness of supply and demand curves theoretical studies posit that subscribers flip in ipos immediately on the listing day to capture instantaneous profits consistent with this hypothesis we find that both curves of the market listing day of ipos are significantly negatively sloped with the supply curve being much steeper and above the demand curve the excess demand that occurs during the subscription period becomes excess supply once the shares start to float on the listing day overall we establish a strong empirical link between the underpricing puzzle and the aftermarket interaction of ipos

delegated portfolio management abstract a problem of screening agents with privately known forecasting abilities and reservation utilities and then eliciting truthful information from these agents once they are employed is considered for the case of risk averse agents and large principals an approximately optimal solution is constructively characterized under the assumption that payoffs are normally distributed a significant extension of the definnetti savage probability elicitation result is developed under this extension knowledge of agent preferences is not required when the underlying conditional distributions are symmetric and this fact is exploited to solve the screening problem in a mean variance formulation

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

two sided uncertainty and up or out contracts a bilateral moral hazard problem provides a rationale for up or out employment contracts the employer sets a wage higher than opportunity cost to induce the worker to invest in firm specific capital if the individual does not make the grade it is in the firm s interest ex post to fire him had the initial arrangement not included provisions for firing individuals the firm would underreport the value of the employee wrecking the incentive scheme the basic model permits both firm and worker to be risk neutral therefore it admits a straightforward multiperiod extension which we also investigate

does the form of compensation matter abstract the role of fee contracts in the agency relation between investment bankers and client firms in tender offers is investigated using a sample of offers between 1978 and 1986 different fees have different payoff functions which can be used by firms to create incentives and by bankers to signal differences in abilities the effectiveness of fee contracts in resolving agency problems in tested with mixed results the evidence suggests that fee contracts are used as a tool by both firms and bankers and that contracts influence tender offer outcomes but that contracting is only a partial solution to the agency problem

optimal contracts under adverse selection and moral hazard a continuous time approach this article presents a continuous time agency model in the presence of adverse selection and moral hazard with a risk averse agent and a risk neutral principal under the model setup we show that the optimal controls are constant over time and thus the optimal menu consists of contracts that are linear in the final outcome we also show that when a moral hazard problem adds to an adverse selection problem the monotonicity condition well known in the pure adverse selection literature needs to be modified to ensure the incentive compatibility for information revelation the model is applied to a few managerial compensation problems involving managerial project selection and capital budgeting decisions we argue that in the third best world the relationship between the volatility of the outcome and the sensitivity of the contract depends on interactions between the managerial cost and the firm s production functions contrary to conventional wisdom sometimes the higher the volatility the higher the sensitivity of the contract the firm receiving good news sometimes chooses safer projects or invests less than it does with bad news we also examine the effects of the observability of the volatility on corporate investment decisions copyright 2005 oxford university press

discount window borrowing across federal reserve districts evidence under contemporaneous reserve accounting abstract in recent years bank borrowing at the discount window has been less reliably related to the spread between the federal funds rate and the discount rate complicating the implementation of the borrowed reserves targeting procedure of the federal reserve this paper investigates borrowing across federal reserve districts to see if there are significant differences in borrowing behavior across bank size and discount window administrations the results suggest that borrowing behavior does differ across districts that standard borrowing models are least satisfactory in explaining the borrowing of large banks and that borrowing behavior changed after the 1987 stock market crash the gains in explanatory power from disaggregation however are not large

an equivalent marginal cost pricing model for the district heating market district heating pricing is a core element in reforming the heating market existing district heating pricing methods such as the cost plus pricing method and the conventional marginal cost pricing method cannot simultaneously provide both high efficiency and sufficient investment cost return to solve this problem the paper presents a new pricing model namely equivalent marginal cost pricing emcp model which is based on the eve pricing theory and the unique characteristics of heat products and district heating the emcp model uses exergy as the measurement of heating product value and places products from different district heating regions into the same competition platform in the proposed model the return on investment cost is closely related to the quoted cost and within the limitations of the heating capacity cost reference and the maximum compensated shadow capacity cost both lower and higher price speculations of heat producers are restricted simulation results show that the model can guide heat producers to bid according to their production costs and to provide reasonable returns on investment which contributes to stimulate the role of price leverage and to promote the optimal allocation of heat resources

precautionary reserves and the interbank market large excess reserve balances are held by banks in the u s despite the ability of large banks to closely target end of day balances close to zero we show that the friction faced by small banks to participate in the fed funds market leads to all banks holding precautionary reserves the precautionary motive for reserves can explain that small banks hold relatively large amounts of excess reserves overnight while at the same time lending large amounts to large banks small banks are large net lenders despite their reluctance to lend as large of a percentage of available balances during the day as large banks we also explain an increase in the volatility of the fed funds rate late in the day

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

who leaves money on the table the role of founder identity in hong kong abstractthis study investigates the effect of corporate governance factors on the underpricing of initial public offerings ipos in hong kong and the results show that this effect is significant ipos are categorized into four subgroups based on the role of the founder 1 no founder firms companies with no specific founder 2 pure founder firms companies whose founder is neither the company s chairman of the board nor its ceo 3 founder chairman ceo firms companies whose founder is either the company s chairman of the board or its ceo and 4 founder chairman ceo firms companies whose founder is the chairman and ceo the results demonstrate a significant descending pattern for the underpricing level of the four subgroups which can be explained by the varying incentive and behaviour mechanisms that result from the various founder identities

the deregulation effects of finnish electricity markets on district heating prices abstract this paper investigates an empirical econometric panel data model in order to test deregulation and regional market structure effects on district heating prices in finland for period 1996 2002 the data was collected from 76 district heating firms throughout finland special emphasis is placed on the modeling of policy induced competition which began in year 1999 regional based fuel selection local market structures and distribution network sharing effects the results imply that the local structures of energy production and sales have an important role to play in the formation of market prices and that the price lowering effects of energy market deregulation are permanent

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 instantaneous control model of bank reserves and federal funds management abstract empirical evidence indicates that large banks are generally net buyers of federal funds while small banks tend to be net sellers asymmetric information bank monopoly power or risk aversion arguments have been offered for this phenomenon however these models do not address the close link between bank reserves and federal funds purchases as alternative means of liquidity management our stochastic control model focuses on this link and has three main implications 1 it analyzes interaction between the above mentioned influences 2 it identifies three additional reasons for banks federal funds activity and 3 it examines the transmission of monetary policy in a dynamic framework

valuing and pricing ipos abstract this paper investigates how underwriters set the ipo firm s fair value an ex ante estimate of the market value using a unique dataset of 228 reports from french underwriters these reports are issued before the ipo shares start trading on the stock market and detail how underwriters determined fair value we document that underwriters often employ multiples valuation dividend discount models and discounted cash flow dcf analysis to determine fair value but that all of these valuation methods suffer from a positive bias with respect to equilibrium market value we also analyze how this fair value estimate is subsequently used as a basis for ipo pricing we report that underwriters deliberately discount the fair value estimate when setting the preliminary offer price part of the intentional price discount can be recovered by higher price updates we find that controlling for other factors such as investor demand part of underpricing stems from this intentional price discount

does prospect theory explain ipo market behavior we derive a behavioral measure of the ipo decision maker s satisfaction with the underwriter s performance based on loughran and ritter 2002 and assess its ability to explain the decision maker s choice among underwriters in subsequent securities offerings controlling for other known factors ipo firms are less likely to switch underwriters when our behavioral measure indicates they were satisfied with the ipo underwriter s performance underwriters also extract higher fees for subsequent transactions involving satisfied decision makers although our tests suggest that the behavioral model has explanatory power they do not speak directly to whether deviations from expected utility maximization determine patterns in ipo initial returns the primary equity or ipo markets are subject to a variety of well known idiosyncratic patterns not least the tendency for ipos to appear underpriced on the first day of trading the profession has invested heavily in explanations for these patterns see ritter and welch 2002 and jenkinson and ljungqvist 2001 for recent reviews the vast majority of theoretical work in the area builds at least implicitly on the premise that market participants are rational and maximize expected utility subject to the burden of market frictions asymmetric information of one sort or another is the friction most widely examined and there is a substantial body of evidence suggesting that such frictions account for at least some of the cross sectional and time variation in the idiosyncratic patterns and yet the question remains whether we can explain more than a small fraction of variation in the data recent events related to the dot corn bubble of the late 1990s lend weight to this concern and lead ritter and welch 2002 to suggest that shifting the focus of the research agenda will lead to

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

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

divide et impera strategic underpricing in privatizations in several recent initial public offerings in privatization casesshares seemed to be severely underpriced in this paper weprovide a political economy explanation for this apparentunderpricing using a variant of grossmann and helpmann s 1996 model of special interest politics we demonstrate thatgovernments may raise their election chances by rationinginvestors because the resulting broader distribution of sharesmakes regulation that is favorable to the privatized firm morepopular somewhat surprisingly even revenues from theprivatization can be increased through rationing the model alsoexplains the common practice of bonus systems designed to preventinvestors from taking profits immediately

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

modernizing residential heating in russia end use practices legal developments and future prospects abstract this article explores the significance of modernization policies concerning russia s technically obsolete but socially important residential heating sector focusing on the 2009 energy efficiency framework law and its prospects for implementation ownership and control structures are in flux throughout the heating sector chain inefficiencies causing low service quality and rising prices have already started eroding the market share of district heating despite its potential benefits end use management practices such as lack of metering communal billing and low prices that do not cover production costs reduce consumer incentives to cut consumption the diversity of end users adds to the complexity of focused measures like energy saving contracts however end use sector reforms such as mandatory meter installation and increasing prices even if socially acceptable and fully implemented cannot alone provide the massive investments required more appropriate is sector wide reform with the government s financial participation especially if consumer efforts can yield better service quality

the effects of shifts in monetary policy and reserve accounting regimes on bank reserve management behavior in the federal funds market abstract this paper looks at the effects on fed fund rates and fed fund purchasing behavior of large banks resulting from i the 1982 regime switch from non borrowed to borrowed reserve targeting by the fed and ii the 1984 switch from lagged to almost contemporaneous reserve accounting cra whether we analyse changes in the interest rate or quantity dimensions the shift in monetary policy targets appeared to have had a more profound effect on the market for bank reserves than the shift in reserve accounting regime these results therefore tend to support the contention that a shift to cra by itself will have little effect on bank reserve management behavior unless combined with its logical counterpart a total reserves target

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

cross country differences in monetary policy execution and money market rates volatility abstract volatility patterns in overnight interest rates display differences across industrial countries that existing models designed to replicate the features of individual countries markets cannot account for this paper presents an equilibrium model of the overnight interbank market that matches cross country differences in patterns in interest volatility by incorporating differences in how central banks manage liquidity in response to shocks our model is consistent with central banks practice of rationing access to marginal facilities when the objective of stabilizing short term interest rates conflicts with another high frequency objective such as an exchange rate target

the large small bank dichotomy in the federal funds market abstract despite the central importance of the federal fund market little research has been undertaken on the micro decision making of individual market participants and their interactions this paper demonstrates that there are asymmetries of information between federal funds lenders and borrowers that can only be resolved through frequent and continuous trading smaller banks are constrained in their ability to borrow federal funds due to their size and location it is shown that information asymmetries and resulting adverse selection problems may be resolved through the use of implicit multi period contracts

new issues on the u k unlisted securities market the ability of entrepreneurs to signal firm value the present paper investigates whether small firm entrepreneurs are able to signal the value of their firms to potential investors when seeking a listing on the u k unlisted securities market usm the signals considered are the percentage of equity retained by the original entrepreneurs the net proceeds raised by an issue the choice of advising agents to an issue the disclosure of an earnings forecast and the level of underpricing of the new issue in addition the possible interactions between the individual signals are considered and included in the analysis the results of the empirical analysis suggest that firm value is positively and significantly related to the percentage of retained equity and the net proceeds raised thus suggesting therefore that stock markets will invest at higher values ceteris paribus if entrepreneurs indicate confidence in their enterprises via levels of equity retention and the funds they intend to invest in future projects

the demand for stocks an analysis of ipo auctions we analyze a unique dataset that includes the full demand schedules of 27 israeli ipos that were conducted as nondiscriminatory uniform price auctions to the best of our knowledge this is the first time the whole demand schedule for any asset is described the demand schedules are relatively flat around the auction clearing price the average elasticity is 27 the elasticity is low when the return distribution contains a large unique component we also find a significant average abnormal return of 4 5 on the first trading day and a positive correlation between the abnormal return and the elasticity of demand article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

fixed versus variable rate loans this paper discusses the nature of fixed and variable loan contracts and derives the conditions which determine the optimal quantity of each the results indicate that the payoff functions are quite different and dependent upon the project financed the appropriate conditions for the allocation of loan terms to a set of borrowers are then developed finally the analysis derives the optimal portfolio frontier and risk return trade off for the banking firm here it is demonstrated that the solution is unlikely to be at a point of zero interest rate risk

a review of the pricing mechanisms for district heating systems heating represents the largest proportion of energy use as supplied to consumers across all end energy uses therefore there is huge potential for energy savings in the heating sector in order to reduce the emission of co2 district heating dh has been considered an efficient environmentally friendly and cost effective method for heating in buildings and is playing an important role in the mitigation of climate change in the interest of fairness and in the highly competitive market the dh companies operate there is a strong need to develop a novel heat pricing mechanism in order to promote sustainable development of dh systems in this paper existing methods and models regarding heat pricing have been reviewed the features of different pricing mechanisms have been analysed including advantages and disadvantages insights into developing an advanced pricing mechanism for dh systems have been offered

the role of bank relationships in the interbank market this paper empirically explores the effect of bank lending relationships in the interbank market we use data from the e mid market that represents the only transparent electronic platform in europe and usa unaffected by search costs and other fictions we show that stable relationships exist and that they played a significant role during the 2007 2008 financial crisis trading with preferred counterparts is associated with more favorable rates for both lenders and borrowers and carries larger trading volumes the results point to a peer monitoring role of relationship lending which contributes at a time of financial distress to a smooth liquidity redistribution among banks relationship lending thus plays an important positive role for financial stability

risk assessment of new pricing strategies in the district heating market a case study at sundsvall energi ab the price structure of district heating has been no major scientific issue for the last decades in energy related research however today trends in district heating pricing tend to move towards a more customer oriented approach with predetermined prices under a longer periods leading to a more complex price structure if a district heating supplier offers district heating with predetermined prices in order to compete with similar electricity offers the financial risk of the new price structure is significantly higher than the risk of an ordinary variable cost offer based on short run marginal cost in contrary to an electricity seller the district heating company cannot transfer all of the risk of predetermined prices to the financial market instead the company is thrown upon its own ability to handle the risk by e g hedging its own energy purchase however all uncertainties cannot be coped with in this manner thus there is a need for a methodology that can be used to estimate the financial risk of different price structures and to value different opportunities to reduce the risk in this article we propose a methodology implemented in prototype software to evaluate the risk associated with new price structures in district heating

regulation asymmetric information and auditing this article analyzes a model of a regulated firm that is better informed about its cost function than is the regulator by auditing at a cost however the regulator is assumed to be able to observe the realized cost of the firm if the regulator finds that the firm had misrepresented its costs at the time at which prices were set he can order a refund to consumers in the optimal policy the regulator audits when the firm reports for pricing purposes that its costs will be high and orders a refund when the auditfinds that realized costs are lower than anticipated given the original report a separation result that obtains for an important case indicates that the initial pricing decision is independent of the auditing decision the auditing decision however depends on the price that was initially set the optimal auditing strategy is characterized and the nature of the welfare gains are identified the methodology used in the analysis involves the characterization of an equilibrium of a revelation game with an ex post observable

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

the spillover effects of biofuel policy on participation in the conservation reserve program abstract this paper studies the spillover effects of rising biofuel production on participation in the conservation reserve program landowner participation decisions are modeled using a real options framework we develop a land use decision model that captures biofuel driven structural changes in market demand and derive threshold conditions that trigger participation in the program we then quantify the impacts of biofuel production on participation at both the national and state levels using monte carlo simulations the model is also used to analyze how changes in the persistence of the biofuel production boom and in the volatility of farming returns affect conservation participation decisions policy implications of the results are discussed

heat tariff and subsidy in china based on heat cost analysis abstract this paper addresses an important issue surrounding heating supply system reform and seeks to evaluate china s heat tariff and heating subsidy from the perspective of the heating cost in the thermoelectric industry in various provinces in china we present an algorithm for estimating environmental externality included heat tariff based on the analysis of heat cost in total thermoelectric cost the results show that during 1999 2014 the average proportion of heating cost in total thermoelectric cost in the north is higher than in the south which is 26 3 and 24 1 respectively generally subsidies hidden in the existing heat tariffs subsidize heat consumers specifically hidden subsidies subsidize residential consumer more than non residential consumer in china

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

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

preplay communication participation restrictions and efficiency in initial public offerings the extent to which the observed procedures for selling new issues are efficient is studied we show that a posted price mechanism in conjunction with nonbinding preplay communication and participation restrictions leads to an allocation of the security and payment that maximizes the seller s expected revenue given the informational constraints imposed by the optimizing incentives of the potential buyers article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

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

regulating district heating in romania legislative challenges and energy efficiency barriers abstract many states in eastern and central europe ece possess extensive district heating dh networks that were constructed during the days of communist rule in order to provide a universally accessible energy service that supported soviet development policies but the post communist transition was marked by the exacerbation of the sector s numerous technical economic regulatory and environmental problems accompanied by its abandonment in favour of alternative methods of domestic heating recent efforts to increase the use of dh in ece as a result of environmental and energy security concerns have taken place in an absence of critical context sensitive research the purpose of this paper is to explore the legal aspects of post communist dh reforms in romania with the aim of identifying some of the governance challenges faced by state authorities in managing the sector in broader terms we seek to explore the extent to which the romanian legislative framework is in a position to promote energy efficiency in dh this has been achieved via an analysis of formal policy documents government decrees strategic documents and laws pertaining to this sector as published and subsequently amended in the official gazette the conclusions of the paper identify the key regulatory issues in the sector especially with respect to the tariff setting process and the division of competences among different organisations in it while suggesting a set of policy steps and general restructuring approaches that could help overcome the current situation

short run versus long run marginal cost pricing abstract this paper argues that given the economic and technological conditions in the us electric utility industry today priving based on short run marginal cost is more efficient than pricing based on long run marginal cost the historical justifications for pricing at long run marginal cost are considered and short run cost based solutions suggested

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

investment banking contracts in tender offers abstract empirical analysis reveals that investment banker advisory fees in tender offers average 1 29 of the value of a completed transaction far below the levels often alluded to in the business press most fees are contingent on offer outcome with target firm fees typically contingent on transaction value and bidding firm fees on the number of shares purchased although these contingent contracts motivate investment bankers to satisfy some client objectives many also create conflicts of interest between banker and firm these incentive problems are apparent in offer evaluation in hostile offers and in the price paid by bidding firms

incentive contracts when production is subcontracted abstract the problem of pricing for products under subcontracting is set in an agency theory format characteristics of decentralization moral hazard and adverse selection are inherent in this problem optimal incentive compensation function and the transfer price are analyzed the results are illustrated with an example of logarithm utility functions

on the design of incentive schemes under moral hazard and adverse selection abstract this paper characterizes a class of optimal incentive schemes in a simple principal agent model which allows for moral hazard and adverse selection we show that incentive compatible allocation can always be approximately implemented through a menu of quadratic incentive schemes it is also proved that the set of incentive compatible allocations is independent of the distribution of the additive uncertainty which affects the outcome informational requirements and economic interpretation of quadratic and linear schemes are discussed

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

using cost observation to regulate firms the paper emphasizes the use of accounting data in regulatory or procurement contracts when the supplier 1 has superior information about the cost of the project and 2 invests in cost reduction the main result states that under risk neutrality the supplier announces an expected cost and is given an incentive contract linear in cost overruns this optimal contract moves toward a fixed price contract as the announced cost decreases an investment choice is then introduced and the use of a rate of return regulation is studied

bank size collateral and net purchase behavior in the federal funds market empirical evidence differences between large and small banks net purchase behavior in the uncollaterized federal funds and collateralized repurchase agreements markets are documented the larger a bank s asset size the larger ceteris paribus its federal funds purchases the threshold asset size is in the region of 1 billion to 2 5 billion for any size class banks located in major banking centers are more likely to be net federal funds purchasers than are banks located outside money centers in the collateralized repurchases agreements market there appears to be no size of locational discrimination indeed the smallest banks are the largest net purchasers as a fraction of assets of funds on the repurchases agreements market copyright 1989 by the university of chicago

efficiency and stability of a financial architecture with too interconnected to fail institutions abstract the regulation of large interconnected financial institutions has become a key policy issue to improve financial stability regulators have proposed limiting banks size and interconnectedness i estimate a network based model of the over the counter interbank lending market in the us and quantify the efficiency stability implications of this policy trading efficiency decreases with limits on interconnectedness because the intermediation chains become longer while restricting the interconnectedness of banks improves stability the effect is non monotonic stability also improves with higher liquidity requirements when banks have access to liquidity during the crisis and when failed banks depositors maintain confidence in the banking 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

re regulating district heating in sweden abstract the electricity market reform in sweden has had great but little discussed consequences for the district heating industry formerly regulated municipal district heating companies are now obliged to operate in a commercial manner and pricing previously regulated by the local authority act is now free the swedish competition authority has on several occasions mentioned to the government that a price regulation ought to be reinstated since district heating is a natural monopoly and in many cases in a dominant market position on local heating markets the competition authority also believes that cross subsidies occur in multi service utilities i e between monopolistic district heating and competitive electricity production and sales municipal district heating is often organised together with electricity sales and production in a municipally owned limited company many municipalities have recently sold their energy utilities to private or state owned commercial actors thus creating private monopolies exempt from price regulations in 1999 the national energy administration stem was given the task to monitor the district heating market and to suggest means to come to terms with these issues stem does not favour a price regulation as the first measure stem also has an operative goal of increasing the use of district heating as a means of reducing electricity dependence in the heating of premises here an interesting conflict of interest exists between the two government authorities we argue that the differences in opinion go beyond the actual tasks given to the authorities but rather depend on perspectives economics and consumer perspective versus an engineering environmental and production perspective we would also like to encourage a broad discussion about the state of district heating and its regulatory condition and that neither economical models nor energy models are taken for granted

banks as monitors of other banks evidence from the overnight federal funds market this study provides evidence that banks are effective monitors of their peers by showing that the interest rate paid on federal funds transactions reflects differences in credit risk across borrowers in addition the size and relative importance in the funds market of the trading institutions are shown to affect the rates charged for overnight borrowing thereby providing insight into the nature of competition in the federal funds market transaction volume and size of transaction effects are uncovered as is evidence of relationship banking between banks these results are made possible by unique data identifying individual federal funds transactions copyright 2001 by university of chicago press

why don t issuers get upset about leaving money on the table in ipos one of the puzzles regarding initial public offerings ipos is that issuers rarely get upset about leaving substantial amounts of money on the table defined as the number of shares sold times the difference between the first day closing market price and the offer price the average ipo leaves 9 1 million on the table this number is approximately twice as large as the fees paid to investment bankers and represents a substantial indirect cost to the issuing firm we present a prospect theory model that focuses on the covariance of the money left on the table and wealth changes our reasoning also provides an explanation for a second puzzling pattern much more money is left on the table following recent market rises than after market falls this results in an explanation of hot issue markets we also offer a new explanation for why ipos are underpriced copyright 2002 oxford university press

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

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

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

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

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

initial public offering discount and competition abstract lacking examples of initial public offering ipo mechanisms that are open to the public and priced competitively previous studies could not determine what size discount if any is economically efficient we compare two pricing regimes on the tel aviv stock exchange an investor driven dutch auction limited by a binding maximum price replaced by one that is free of that constraint our evidence shows that rationing and herding disappear improving the access of uninformed investors to strong issues and alleviating their exposure to losses attached to weak issues pricing quality increases by the elimination of the underpricing bias decreased price dispersion and increased price sensitivity to ipo unique factors underwriter services do not deteriorate but garner moderately higher fees apparently to compensate for a higher risk consistently there is no deterioration in ipo efficiency as a screen from weak issues our evidence does not support the view that underpricing is competitive or eff

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

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

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

public offerings of state owned and privately owned enterprises an international comparison we compare initial offer prices in privatizations to initial prices in public offerings of private companies the evidence indicates that government officials in the united kingdom underprice ipos significantly more than their private company counterparts in canada and malaysia however the opposite is true there does not appear to be a general tendency for privatizations to be underpriced to a greater degree than private company ipos we provide additional evidence on the determinants of privatization initial returns our findings indicate that initial returns are significantly higher in relatively primitive capital markets and for privatized companies in regulated industries

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

moral hazard and adverse selection the question of financial structure this paper looks at the moral hazard and adverse selection problems confronting an entrepreneur offering securities to an uninformed but competitive financial market the adverse selection aspect of the problem is generated by the unobservable entrepreneur s ability to transform effort into value moral hazard arises because the investment decision is made subsequent to financing we consider the joint use of both debt and equity and characterize the equilibrium relation between capital structure and unobservable attributes it is shown that 1 investment and financing are not separable 2 there is an underinvestment problem for better firms and 3 simultaneous use of both debt and equity can resolve this difficulty we also establish a connection between expected terminal firm value and debt promised payment level and between share retention and standard deviation agency problems in corporate finance originated with the influential papers of jensen and meckling 11 myers 17 ross 21 and leland pyle 14 they show that the market imperfections induced by unobservable actions lack of contracting ability and information asymmetry generally lead to second best outcomes in which the distribution of corporate ownership is achieved only at significant cost these costs take the form of excessive perquisite consumption overinvestment underinvestment and incomplete diversification of personal investment portfolios moral hazard and adverse selection comprise two forms in which agency problems may take shape arrow 1 equates these two terms with hidden action and hidden information respectively moral hazard arises when the action undertaken by the agent is unobservable and has a differential value to the agent as compared to the principal adverse selection problems arise when the agent has more information than the principal the resolution of such difficulties has been explored in a number of contexts with both signals and contingent contracting mechanisms these definitions exclude certain agency problems in the delegation literature for which the preference incongruity results from a lack of precommitment rather than some exogenous feature of the model in corporate finance one would thus identify the jensen meckling paper with moral hazard because perquisites enter the insider s objective differently from outsiders while darrough is from columbia university and stoughton is from the university of california irvine the second author s research was partially supported by grant number 410 83 0786 r 1 from the social sciences and humanities research council of canada this paper was presented at the 1984 meetings of the western finance association in vancouver and at the 1985 european finance association meetings in bern we thank kose john and frans tempelaar for their comments at the meetings

regulating a monopolist with unknown costs we consider the problem of how to regulate a monopolistic firm whose costs are unknown to the regulator the regulator s objective is to maximize a linear social welfare function of the consumers surplus and the firm s profit in the optimal regulatory policy prices and subsidies are designed as functions of the firm s cost report so that expected social welfare is maximized subject to the constraints that the firm has nonnegative profit and has no incentive to misrepresent its costs we explicitly derive the optimal policy and analyze its properties in their classic papers dupuit 2 and hotelling 5 considered pricing policies for a bridge that had a fixed cost of construction and zero marginal cost they demonstrated that the pricing policy that maximizes consumer well being is to set price equal to marginal cost and to provide a subsidy to the supplier equal to the fixed cost so that a firm would be willing to provide the bridge this first best solution is based on a number of informational assumptions first the demand function is assumed to be known to both the regulator and to the firm while the assumption of complete information may be too strong the assumption that information about demand is as available to the regulator as it is to the firm does not seem unnatural a second informational assumption is that the regulator has complete information about the cost of the firm or at least has the same information about cost as does the firm this assumption is unlikely to be met in reality since the firm would be expected to have better information about costs than would the regulator as weitzman has stated an essential feature of the regulatory environment i am trying to describe is uncertainty about the exact specification of each firm s cost function in most cases even the managers and engineers most closely associated with production will be unable to precisely specify beforehand the cheapest way to generate various hypothetical output levels because they are yet removed from the production process the regulators are likely to be vaguer still about a firm s cost function 12 p 684 as this observation suggests it is natural to expect that a firm would have better information regarding its costs than would a regulator the purpose of this paper is to develop an optimal regulatory policy for the case in which the regulator does not know the costs of the firm one strategy that a regulator could use in the absence of full information about costs is to give the firm the title to the total social surplus and to delegate the pricing decision to the firm in pursuing its own interests which would then be to maximize the total social surplus the firm would adopt the same marginal cost pricing strategy that the regulator would have imposed if the regulator had

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