government old age support and labor supply evidence from the old age assistance program many major government programs transfer resources to older people and implicitly or explicitly tax their labor in this paper we shed new light on the labor supply and welfare effects of such programs by investigating the old age assistance program oaa a means tested and state administered pension program created by the social security act of 1935 using newly available census data on the entire us population in 1940 we exploit the large differences in oaa programs across states to estimate the labor supply effects of oaa our estimates imply that oaa reduced the labor force participation rate among men aged 65 74 by 5 8 percentage points nearly half of its 1930 40 decline however both reduced form evidence and an estimated structural model of labor supply imply that the welfare cost to recipients of the high tax rates implicit in oaa s earnings test were small the evidence also suggests that social security could account for at least half of the large decline in late life work from 1940 to 1960

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

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

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

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

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

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

financing the small firm this study presents a framework to delineate financing the small firm special consideration is given to small firms unique financing sources such as trade and bank credit entrepreneur s own resources informal investment and venture capital the small firm has limited or no access to many traditional debt and equity markets that supply long term financing to the corporate world and therefore operates in segmented and imperfect financial markets the links between small firms financing opportunities and managerial goals are traced from the start up stage through establishing a mature firm as the small firm matures it operates in a broader financial market this study establishes the foundation for future empirical research

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

social security disability insurance applications awards and lifetime income flows this article provides new evidence about the impact of social security disability insurance on male labor force participation decisions based on estimates from a structural model of applications awards and state contingent lifetime income flows the lifetime framework makes it possible to consider long term opportunity costs associated with early labor force withdrawal and the disincentive to applications resulting from the statutory waiting period before benefits may be received estimation techniques account for the self selected nature of the pool of applicants when predicting the individual specific probability of acceptance and the opportunity costs of applying

capital gains tax rates and the cost of capital for small business evidence from the ipo market abstract we examine the issue prices of small initial public offerings around the 1993 tax law change that reduced the capital gains tax on qualified small business stock we compare the actual issue price of new stock with a benchmark price that is not affected by the change in capital gains tax we find that after controlling for ipo underpricing the issue prices of qualifying small business stock after the tax rate change are significantly higher than the issue prices before the change a control sample of nonqualifying firms shows no significant difference in issue prices

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 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

australian ipo pricing in the short and long run abstract we analyse both initial underpricing and post listing returns for australian ipos our results are consistent with the view that unique institutional characteristics may have overwhelmed previous australian tests of equilibrium models of ipo underpricing the results also show that australian ipos significantly underperform market movements in the three year period subsequent to listing further investigation of these anomalous post listing returns lead us to reject various speculative bubble explanations rather the evidence suggests a curvilinear relationship between initial and subsequent returns although the economic significance of the relationship is low

media legitimation effects in the market for initial public offerings in this study we argue that media provided information affects investors impressions of newly public firms in 225 initial public offerings ipos the volume of mediaprovided information had a negative diminishing relationship with underpricing and a positive diminishing relationship with stock turnover on the first day of trading the relationship between the tenor of media provided information and underpricing increases at a nonlinear rate and decreases similarly for turnover findings provide important evidence that publicly available information not only reflects ipos legitimacy but also adds to their legitimacy and influences investor behavior in the last 20 years an increasing amount of research on markets has been conducted from a social constructionist perspective emphasizing how social structures enhance the flow of useful and credible information that market participants use to reduce the uncertainty of market exchanges e g aldrich fiol 1994 zuckerman 1999 further recent organizational research has begun to stress the influence of information intermediaries such as financial analysts and the media on mar

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

how much of the diversification discount can be explained by poor corporate governance we investigate whether the diversification discount occurs partly as an artifact of poor corporate governance in panel data models we find that the discount narrows by 16 to 21 when we add governance variables as regression controls we also estimate heckman selection models that account for the endogeneity of diversification and dynamic panel generalized method of moments models that account for the endogeneity of both diversification and governance we find that the diversification discount persists even with these controls for endogeneity however in selection models the discount disappears entirely when we introduce governance variables in the second stage and in dynamic panel gmm models the discount narrows by 37 when we include governance variables

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

the rise in the disability rolls and the decline in unemployment between 1984 and 2001 the share of nonelderly adults receiving social security disability insurance income di rose by 60 percent to 5 3 million beneficiaries rapid program growth despite improving aggregate health appears to be explained by reduced screening stringency declining demand for less skilled workers and an unforeseen increase in the earnings replacement rate we estimate that the sum of these forces doubled the labor force exit propensity of displaced high school dropouts after 1984 lowering measured u s unemployment by one half a percentage point steady state calculations augur a further 40 percent increase in the rate of di receipt

housing wealth property taxes and labor supply among the elderly we investigate the relationship between housing wealth property taxes and elderly labor supply using longitudinal data from the health and retirement survey spanning the recent boom bust housing cycle when combined with msa specific house price indexes the data provide plausibly exogenous variation in housing wealth identified through within msa renter homeowner comparisons our findings suggest that elderly households respond to variation in housing wealth and property taxes in the predicted opposing directions that wealth influences labor supply to a lesser extent than factors like health and marital status and that the effect of housing wealth on labor supply varies by gender and age

mountain or molehill downward biases in the conglomerate discount measure abstract the berger and ofek 1995 excess value measure comparing a conglomerate s actual market value to an imputed value based on standalones has become the standard method to determine value effects of diversification in this paper we address a significant bias in this procedure stemming from the difference in cash holdings between diversified and standalone firms excess values are based on firm values including corporate cash positions as standalones hold significantly more cash the imputed cash value is higher than the conglomerate s actual cash value resulting in a downward biased excess value we thus propose to calculate excess values based on enterprise values replacing total debt by net debt based on an extensive us sample we show that there is significantly less evidence of a diversification discount when adjusting for the cash bias in terms of average dollar losses the firm value based models overestimate the conglomerate discount by at least 25 apart from removing the cash bias we propose a second modification to the excess value measure arguing that standalone industry multipliers should be calculated using geometric mean aggregation instead of median aggregation

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

investment bank reputation and the price and quality of underwriting services the relation between investment bank reputation and the price and quality of bond underwriting services is studied here after controlling for endogeneity in issuerunderwriter matching i find that reputable banks obtain lower yields and charge higher fees but issuers net proceeds are higher these relations are pronounced in the junk bond category in which reputable banks underwriting criteria are most stringent these findings suggest that banks underwriting decisions reflect reputation concerns and are thus informative of issue quality they also suggest that economic rents are earned on reputation and thereby provide continued incentives for underwriters to maintain reputation in capital markets investment banks play the important role of bridging firms that need capital with investors that seek investment opportunities intermediation services are valuable first because the banks specialization in the sales and marketing of securities helps lower the issuers transactional costs of borrowing but perhaps more importantly investment banks can provide value through their role in lowering the issuers informational cost of capital this role arises from the information asymmetry that typically exists between insiders the issuing firms and outsiders the investors in security issuance events such an information gap as akerlof demonstrated in his classic 1970 paper at best causes investors to discount the securities and at worst can threaten the existence of the market investment banks standing between the insiders and the outsiders seem to be in the perfect position to reduce information asymmetry and lower the cost of capital that issuers would otherwise have to pay but how does an investment bank solve its own information problem visa vis the investor one solution is the reputation capital at stake for the intermediary a key difference between investment banks and ordinary issuers lily hua fang is from finance area insead this paper is based on a chapter of my dissertation i am indebted to my advisors gary gorton robert holthausen andrew metrick david musto and ayako yasuda for their guidance and support i owe special thanks to an anonymous referee whose insightful comments helped me improve the paper greatly i also want to thank franklin allen john core petra todd jay ritter and robert stambaugh the editor for valuable feedback comments and suggestions from seminar participants at boston college insead

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

the effect of capital gains taxes on the initial pricing and underpricing of ipos we investigate the extent to which capitalization of expected capital gains taxes and the lock in effect induced by the capital gains tax rate differential simultaneously impact the pricing and underpricing of initial public offerings ipos using a large sample of ipos from 1987 to 2010 we estimate regressions of offer prices and first day underpricing on tax rates supporting tax capitalization ipo offer prices decrease in long term capital gains taxes supporting lock in ipo underpricing increases in the long term and short term tax rate differential these effects are consistent with capital gains taxes simultaneously reducing ipo proceeds and exacerbating ipo underpricing

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

what causes the ipo underpricing new evidence from china s sme market we study 10 year ipo initial returns in china s small and medium sized enterprise sme board between 2006 and 2016 including 755 ipo samples at the same time we test how policy changes of ipo p

economic determinants of workers retirement decisions the landscape for older workers has changed dramatically in recent decades governments have made cuts to public pension programs private pensions have shifted from defined benefit to defined contribution plans equity and housing markets have been unusually volatile and workers have experienced declining morbidity and mortality at the same time the labor force participation rate for older men and women has been rising over the past two decades implying later retirement are these phenomena related this paper reviews the large and growing body of literature exploring the economic determinants of workers retirement decisions including public and private pensions wealth and savings health and health insurance and labor demand

labor market shocks and retirement do government programs matter abstract this paper argues that labor market conditions are an important and often overlooked determinant of retirement transitions in our analysis we examine how the unemployment rate affects retirement and whether the social security ss system and unemployment insurance ui system influence how older workers respond to labor market shocks we use pooled cross sectional data from the march current population survey cps in our analysis we find that downturns in the labor market increase retirement transitions and that the magnitude of this effect is comparable to that associated with moderate changes in financial incentives to retire and to the threat of a health shock facing older workers interestingly retirements only increase in response to an economic downturn once workers become ss eligible suggesting that retirement benefits may help to alleviate the income loss associated with a weak labor market we also estimate the impact of ui generosity on retirement and find little consistent evidence of an effect this suggests that in some ways ss may serve as a more effective form of unemployment insurance for older workers than ui

divisional diversity and the conglomerate discount evidence from spinoffs abstract existing literature argues that disparity in investment opportunities within diversified firms can erode firm value we investigate the diversity cost hypothesis of spinoffs by using post spinoff data to 1 reconstruct the diversified firm after the spinoff and assess the aggregate improvement in value and 2 relate any value improvements to changes in diversity we find that improvements in aggregate value depend significantly on changes in both a direct measure of diversity and measures based on industry proxies we conclude that diversification discounts at least partially reflect a value loss due to the diversified nature of the firm itself rather than selection bias or measurement error

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

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

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

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

economic determinants of workers retirement decisions economic determinants of workers retirement decisions the landscape for older workers has changed dramatically in recent decades governments have made cuts to public pension programs private pensions have shifted from defined benefit to defined contribution plans equity and housing markets have been unusually volatile and workers have experienced declining morbidity and mortality at the same time the labor force participation rate for older men and women has been rising over the past two decades implying later retirement are these phenomena related this paper reviews the large and growing body of literature exploring the economic determinants of workers retirement decisions including public and private pensions wealth and savings health and health insurance and labor demand

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

how do financial resources affect the timing of retirement after a job separation this study examines working people between the ages of 50 and 70 years old and the conditions that lead them to decide to retire or not after they experience a job separation based on data from the survey of income and program participation the author finds that among individuals whose jobless spells end in retirement most decide to retire within a year after separation the availability of resources such as social security retirement benefits high net worth and income from defined benefit pensions appear to encourage more rapid labor force exit and retirement rather than supporting job seekers during a long search perhaps surprisingly no correlation between retirement and the unemployment rate occurs but unemployment insurance benefits do delay retirement these results suggest little tolerance for long job searches regardless of labor market prospects and indicate that those who can afford to retire will do so rather quickly

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

recessions retirement and social security this paper examines how labor market fluctuations around the time of retirement affect the labor force status and social security receipt of individuals ages 55 to 69 and the income of retirees in their 70s using data from the march current population survey census and american community surveys we find that workers are more likely to leave the labor force to collect social security earlier and to have lower social security income when they face a recession near retirement the impact is greatest for the less educated who are more susceptible to job loss and rely more heavily on social security

incarceration and racial inequality in men s employment to estimate employment population ratios for black and white men with an adjustment for incarceration a factor overlooked by most research on employment inequality the authors combine data from sur

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

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

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

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

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

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

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

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