Abstract not found

In the 1980s, the average first-day return on initial public offerings (IPOs) was 7%. The average first-day return doubled to almost 15% during 1990-1998, before What explains the severe underpricing of initial public offerings in 1999-2000, when the average first-day return of 65% exceeded any level previously seen before? In this article, we address this and the related question of why IPO underpricing doubled from 7% during 1980-1989 to almost 15% during 1990-1998 before reverting to 12% during the post-bubble period of 2001-2003. Our goal is to explain low-frequency movements in underpricing (or first-day returns) that occur less often than hot and cold issue markets. We examine three hypotheses for the change in underpricing: 1) the changing risk composition hypothesis, 2) the realignment of incentives hypothesis, and 3) a new hypothesis, the changing issuer objective function hypothesis. The changing issuer objective function hypothesis has two components, the spinning hypothesis and the analyst lust hypothesis. The changing risk composition hypothesis, introduced by The realignment of incentives and the changing issuer objective function hypotheses both We thank Hsuan

This paper examines the effects of venture capital backing on the corporate governance of the firm following the IPO. I conduct three independent sets of tests examining effectively how governance and monitoring might differ for venture- and non-venture-backed firms. First, I find that venture-backed firms have lower earnings management, as measured by the level of their discretionary accounting accruals, than similar nonventure-backed firms. Second, venture-backed firms experience a significantly higher wealth effect upon the announcement of the adoption of a shareholder rights agreement (poison pill) than non-venture-backed

We report that initial public offering (IPO) underpricing is positively related to analyst coverage by the lead underwriter and to the presence of an all-star analyst on the research staff of the lead underwriter. These findings are robust to controls for other determinants of underpricing and to controls for the endogeneity of underpricing and analyst coverage. In addition, we find that the probability of switching underwriters between IPO and seasoned equity offering is negatively related to the unexpected amount of post-IPO analyst coverage. These findings are consistent with the hypothesis that underpricing is, in part, compensation for expected post-IPO analyst coverage from highly ranked analysts. INVESTMENT BANKERS PROVIDE a wide range of services to firms issuing new shares through an initial public offering (IPO). These services include pre-IPO activities, related to the pricing, marketing, and distribution of the offering, as well as post-IPO activities such as price stabilization, market making, and analyst research coverage. Despite the variety of services provided to issuers and the variation in issuer characteristics, there is surprisingly little variation in the direct costs of completing an IPO. Chen and Ritter (2000) and Hansen (2001) show that underwriter spreads in IPOs are clustered at 7 % for all but the very smallest and very largest offerings. Moreover, a 15 % overallotment option is a standard feature of IPO contracts. Both anecdotal and academic evidence indicate that research coverage has become an essential element of the security issuance process in recent years. Press reports indicate that star analysts play an important role in securing

this paper are those of the authors and do not necessarily reflect those of TIAA-CREF. We would

We find that dual-class firms experience less underpricing than single-class firms, and we explore several hypotheses which might explain this phenomenon. Compared to single-class firms, dual-class companies have slightly higher post-IPO institutional ownership and experience fewer control events. Although dual-class firms achieve a lower underpricing cost, they trade at lower prices relative to earnings and sales than do single-class IPOs. This pricing differential, combined with evidence that dual-class managers earn higher compensation and that dual-class shares are common among media and entertainment industry IPOs, suggests that dual-class ownership structures protect private control benefits.

We examine the links among IPO underpricing, post-IPO analyst coverage, and the likelihood of switching underwriters. Our findings indicate that underpricing is positively related to analyst coverage by the lead underwriter and to the presence of an all-star analyst on the research staff of the lead underwriter. These findings are robust to controls for other determinants of underpricing previously documented in the literature and to controls for the endogeneity of underpricing and analyst coverage. In addition, after controlling for other potential determinants of switching underwriters, we find that the probability of switching underwriters between IPO and SEO is negatively related to the unexpected amount of post-IPO analyst coverage. We interpret these findings as consistent with the hypothesis that underpricing is, in part, compensation for expected post-IPO analyst coverage from highly ranked analysts. 1 Do IPO Firms Purchase Analyst Coverage With Underpricing? Investment bankers provide a wide range of services to firms issuing new shares through an initial public offering (IPO). These services include pre-IPO activities related to the pricing, marketing, and distribution of the offering, as well as post-IPO activities such as price

takeover regulation SUMMARY To foster corporate restructuring and capital market integration, the European Commission has repeatedly attempted to introduce Europe-wide takeover regulation, but has encountered strong resistance. We trace the sources of this resistance to differences in corporate governance arrangements across member states and outline the economic effects of takeover regulation, focusing in particular on possible provisions of particular relevance to the European debate. Regulation may stipulate that the same price be offered to all shareholders (a ‘mandatory bid ’ rule) and/or that differentiation of voting-rights be voided when a bidder acquires a large enough portion of a firm’s shares (a ‘break-through ’ rule). The impact of these and other rules depends on the existing structure of corporate ownership and control, which is very heterogeneous in Europe. And while a break-through rule promotes takeovers, a mandatory bid rule tends to prevent them. Hence, the two rules would tend to offset each other if introduced together, and introducing a strict mandatory bid rule alone would slow down corporate restructuring. We argue that hostile takeovers are a rather blunt instrument for achieving desirable contestability of control, and their regulation is only one of many corporate governance mechanisms to be honed in order to promote corporate restructuring in Europe.

JEL classification: G30 G34 C70 Keywords: Mergers and acquisitions Division of gains Product market relations Bargaining a b s t r a c t In contrast to the widely held belief that targets capture the lion's share of merger gains, I show that the average dollar gains to targets are only modestly more than the dollar gains to acquirers. To help explain the variation in merger outcomes, I present empirical evidence in support of a new hypothesis that a target's relative scarcity (proxied by its market power) and product market dependence (proxied by customer-supplier relations) help to explain its share of the total merger gains. These results provide new evidence for an unexplored role of product markets on bargaining outcomes in mergers.

comments that were helpful in developing this work. We thank Kinjal Desai for his research assistance.