bookbuilding and strategic allocation in the bookbuilding procedure an investment banker solicits bids for shares from institutional investors prior to pricing an equity issue the banker then prices the issue and allocates shares at his discretion to the investors we examine the books for 39 international equity issues we find that the investment banker awards more shares to bidders who provide information in their bids regular investors receive favorable allocations especially when the issue is heavily oversubscribed the investment banker also favors revised bids and domestic investors investment banks commonly build a book before pricing an equity issue in the united states it has been standard practice for a number of years in many other countries where fixed price offerings were traditionally used the bookbuilding procedure is becoming increasingly common especially for international equity issues 1 under the formal bookbuilding procedure the investment banker solicits indications of interest from institutional investors such indications consist of a bid for a quantity of shares and might include a maximum price i e a limit price or other details the investment banker uses the information to construct a demand curve the issue price is not set according to any explicit rule but rather based on the banker s interpretation of investors indications of interest he generally sets the price at a level at which demand exceeds supply and then allocates shares to the bidders at his discretion thus the

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

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

good ipos draw in bad inelastic banking capacity and hot markets we posit that screening ipos requires specialized labor which is in fixed supply a sudden increase in demand for ipo financing increases the compensation of ipo screening labor this results in reduced screening encouraging sub marginal firms to enter the ipo market further fueling the demand for screening labor the model s conclusions are consistent with empirical findings of increased underpricing during hot markets positive correlation between issue volume and underpricing and with tipping points between hot and cold markets finally the model makes sharp predictions relating the ipo market to fundamental values of firms and to investment banking returns

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

strategic liquidity supply and security design we study how securities and issuance mechanisms can be designed to mitigate the adverse impact of market imperfections on liquidity in our model asset owners seek to obtain liquidity by selling claims contingent on privately observed future cash flows liquidity suppliers can be competitive or strategic in the optimal trading mechanism associated to an arbitrary given security issuers with low cash flows sell their entire holdings of the security while issuers with high cash flows are typically excluded from trade by designing the security optimally issuers can avoid exclusion altogether we show that the optimal security is debt because of its low informational sensitivity debt mitigates the adverse selection problem furthermore by pooling all issuers with high cash flows debt also reduces the ability of a monopolistic liquidity supplier to exclude them from trade in order to better extract rents from issuers with lower cash flows

retail redlining are gasoline prices higher in poor and minority neighborhoods anyone who has ever struggled with poverty knows how extremely expensive it is to be poor go shopping one day in harlem for anything and compare harlem prices and quality with those downtown james baldwin nobody knows my name 1961 it s not that these businesses are saying you black people you get out of my establishment they are saying come on in but we re going to rip you off allison bethel florida assistant attorney general in u s news and world report 2000 i introduction the economics literature on discrimination in consumer markets is dominated by studies of differences in negotiated prices in two markets housing e g myers 2004 ondrich ross and yinger 2003 yinger 1986 1995 and automobiles e g ayres and siegelman 1995 goldberg 1996 a few additional studies examine price differentials in smaller markets in which prices are also negotiated such as trading cards list 2004 car repairs gneezy and list 2004 and fish graddy 1995 less evidence is available from the numerous consumer markets in which prices are publicly posted and fixed in this situation individually targeted racial price discrimination is unlikely because as siegelman 1998 points out it would require the flagrant and illegal display of different prices for whites and minorities however firms may still adopt practices that increase the probability that minorities or other targeted groups will pay higher prices we use data on gasoline prices and station characteristics from three metropolitan areas to test for one such practice commonly referred to as retail redlining following d rozario and williams 2005 we define retail redlining as a practice among retailers that results in lower quality goods and services and or higher prices in areas with large minority or poor populations claims of retail redlining arise regularly in both academic sources and the popular press often involving catch phrases such as the poor pay more the high price of poverty or the poorer you are the more things cost brown 2009 downing 2007 sturdivant 1969 accusations of retail redlining also arise in courtrooms and politics gm walmart burger king domino s pizza and kb toys have been sued for discriminatory practices in minority neighborhoods fuller 1998 jelisavcic 1996 kaplan 2000 smith 1996 in 1992 the mayor of los angeles touted the need for more equal access to supermarkets following the los angeles riots and in 2009 illinois senator roland burris introduced a request to the annual federal appropriations bill for a campaign to fight retail redlining on chicago s south side burris 2009 shaffer 2002 the bulk of the empirical evidence on retail redlining comes from the large grocery gap literature which explores variations across neighborhoods in the accessibility quality and price of food sold at grocery stores much of this evidence suggests that grocery prices are higher in inner city neighborhoods and that this is largely explained by the lack of large chain stores in these areas chung and myers 1999 hall 1983 kaufman et al 1997 shaffer 2002 by contrast hayes 2000 using a large nationally representative sample of price data from the sampling frame used to construct the consumer price index finds that prices are lower in poor neighborhoods but that the discount is not constant across races poor whites and hispanics receive discounts but poor blacks pay similar prices as affluent whites turning to the market for prepared food graddy 1997 finds that fast food meal prices increase by about 5 for a 50 point increase in the percent black in a zip code while food which makes up a large portion of consumer budgets is an important candidate for the study of inter neighborhood price variations accusations of retail redlining extend beyond this single market we provide evidence from a hitherto unexamined market retail gasoline

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

market watch information and availability cascades among the media and investors in the u s ipo market in this study we advance current research on social influence in markets by examining how the recency and availability of information about others actions within and between different communities influence their allocation of attention and their evaluations specifically we examine how the media and investors allocate attention to and evaluate newly public firms in the days following their initial public offerings ipos our findings have implications for understanding the fieldwide processes through which the value of new firms is established in markets

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

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 impact of global equity offerings this article examines the impact of u s firms issuing equity in multiple markets we compare the stock price reactions to announcements of global equity offers to a control group of issues offered exclusively in the domestic u s market all else equal the adverse price reaction that typically accompanies equity issuance is reduced by 0 8 percent when some shares are sold abroad the overall evidence suggests global offers are effective in expanding demand and reducing the price pressure effects associated with share issuance the benefits of global offers appear to be associated with an increase in the number of foreign shareholders the search for new capital markets and lower costs of capital is an ongoing search for most firms in recent years the number of u s firms issuing common equity in international markets has increased significantly in 1985 u s firms raised 89 million through follow on equity offers in foreign markets and this amount increased to 18 915 million in 1995 a greater than 200 fold increase in nominal terms this paper focuses on follow on global equity issues by u s firms and attempts to assess why firms widely acknowledged to have access to broad and deep domestic capital markets increasingly seek to raise equity abroad the global equity offerings we examine involve a simultaneous sale of common equity at the same offer price in the u s market and one or more international markets we examine the characteristics of the issuers and issues and investigate to what extent the wider distribution of shares affects the pricing and costs of these issues our main line of inquiry examines whether the distribution of shares to multiple markets results in a higher offer price for equity shares than would be obtained had the shares been sold exclusively in the u s market domes

ipo underpricing explanations implications from investor application and allocation schedules initial public offers ipos made on the stock exchange of singapore routinely provide sufficiently detailed data to allow reconstruction of both the application and allocation schedules we show that large investors tend to preferentially request participation in ipos with higher initial returns consistent with these investors being better informed we also show that inferences based exclusively on application strategies are quite different from those drawn on investor allocations our results suggest that caution is necessary in assessing the relative merit of competing explanations for ipo underpricing where the underlying demand is not identified

bookbuilding how informative is the order book we examine the institutional bids submitted under the bookbuilding procedure for a sample of international equity issues we find that information in bids which include a limit price especially those of large and frequent bidders affects the issue price oversubscription has a smaller but significant effect for ipos public information affects the issue price to the extent that it is reflected in the bids oversubscription and demand elasticity are positively correlated with the first day aftermarket return and demand elasticity is negatively correlated with aftermarket volatility our results support the view that bookbuilding is designed to extract information from investors

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

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

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

the efficient ipo market hypothesis theory and evidence we derive the optimal underwriting method and the quantitative initial public offering ipo pricing rule that this method implies in a market with informational frictions consisting of fully rational banks issuers and investors in an efficient ipo market an issuer s expected initial return will be determined entirely by the combination of this pricing rule and issuer fundamentals applying this rule we find that we can explain the quantitative magnitude of the principal aspects of the time series and cross sectional variation in ipo average initial returns we conclude that the ipo market is efficient

evidence on the effect of claw back provisions on ipo share allocation and underpricing in hong kong abstractthe article examines share allocation practices of over 300 initial public offerings ipos in hong kong during the years immediately following the enacting of a claw back provision for ipo share reallocation the examination of exhaustive micro level data reveals that small uninformed retail investors earn higher initial returns than large investors before the enacting of the claw back provision small investors were unfavourably treated in relation to large investors the pattern now prevailing in the proportion of shares allocated to small and large investors also differs from that observed previously when attempting to isolate the determinants of ipo underpricing in hong kong the article also shows that both the informed demand hypothesis and the signalling effect of underwriters reputation are significant determinants of underpricing such result not visible when pooled ols regressions are used becomes apparent through the use of a system of simultaneous equations

sequential sales learning and cascades when ipo shares are sold sequentially later potential investors can learn from the purchasing decisions of earlier investors this can lead rapidly to cascades in which subsequent investors optimally ignore their private information and imitate earlier investors although rationing in this situation gives rise to a winner s curse it is irrelevant the model predicts that 1 offerings succeed or fail rapidly 2 demand can be so elastic that even risk neutral issuers underprice to completely avoid failure 3 issuers with good inside information can price their shares so high that they sometimes fail 4 an underwriter may want to reduce the communication among investors by spreading the selling effort over a more segmented market consider a scenario in which an issuer is selling a new security of uncertain value for example an ipo initial public offering of stock or high yield debt through an underwriter the s e c has banned variable price sales while the value of this new security is highly uncertain to individual market participants investors hold perfectly accurate information when aggregated moreover there are many potential investors and a small number of these investors can jointly determine the value of the firm or its project with high precision it would seem that in this scenario underpriced offerings would succeed and overpriced offerings would fail nevertheless this paper shows that if the distribution channels of invest ment banks are limited underpriced offerings can fail and overpriced offer ings can succeed with limited distribution channels it takes the under writer time to approach interested investors therefore later investors can observe how well an offering has sold to date or at least how successful it has sold relative to offerings previously undertaken by this underwriter

are ipo allocations for sale evidence from mutual funds combining data on brokerage commissions that mutual fund families paid for trade execution between 1996 and 1999 with data on mutual fund holdings of initial public offerings ipos i document a robust positive correlation between commissions paid to lead underwriters and reported holdings of the ipos they underwrite moreover i find that the correlation is limited to ipos with nonnegative first day returns and strongest for ipos that occur shortly before mutual funds report their holdings when the noise introduced by flipping is smallest overall the evidence suggests that business relationships with lead underwriters increase investor access to underpriced ipos during the hot initial public offering market of the late 1990s the typical initial public offering ipo was significantly underpriced and oversubscribed and the first day returns earned by investors in these ipos received considerable public attention 1 the source of these first day returns and related questions

ipo pricing and share allocation the importance of being ignorant since an underwriter sets an ipo s offer price without knowing its market value investors can acquire information about its value and avoid overpriced deals lemon dodge to mitigate this well known risk the bank enters into a repeat game with a coalition of investors who do not lemon dodge in exchange for on average under priced shares we i derive and test a quantitative ipo pricing rule showing that tech ipos were not excessively underpriced during the boom of the 1990s and ii analyzing a unique multibank data set find strong support for the conjecture that a bank preferentially allocates shares to its coalition do not approve of anything that tampers with natural ignorance igno rance is like a delicate exotic fruit touch it and the bloom is gone

the emergence of an educational tool industry opportunities and challenges for innovation in education the paper addresses two issues one concerns the general conditions and procedures involved in the emergence of a tool industry tool industries emerge and evolve as a collection of capital goods and tool inventors and manufacturers one of our goals is to use some of the works on historical cases to build a heuristic framework concerning the main conditions for the emergence and development of tool industries the other issue is more factual and involves the question whether a tool industry is today emerging in the area of education the paper describes the emergence of a population of firms specialised in developing and commercialising educational tools and instructional technologies and discuss whether this trend can be seen as part of the solution to the innovation deficit and cost disease problems in this sector