...Table of Contents Content | Page no: | Question A | 4 | Question B | 5 | Question C | 10 | Question D | 12 | References | | Question A: The IPO process is characterized by information asymmetries. Explain how these asymmetries may be reduced through the book-building process. IPO (initial public offering):- The first sale of stock by a private company to the public. IPOs are often issued by smaller, younger companies seeking the capital to expand, but can also be done by large privately owned companies looking to become publicly traded.IPO process, are asymmetrically informed as managers and internal subjects posses private information about the firm's future prospects which may be not completely known to external investors. The process by which an underwriter attempts to determine at what price to offer an IPO based on demand from institutional investors. A company issuing an IPO through book building method follows the following steps: * A leading merchant banker is nominated by the IPO issuing company for book building, known as Book-Runner. * The concerned company then announces the total number of IPO shares that it is willing to issue along with the price range/band. * Investors are then allowed to bid for these issued...
Words: 4277 - Pages: 18
...privately owned company whether going public is a possibility for attracting new capital. Research upon IPOs resulted in variables of which a conceptual and hypothesized model were created. A meta-analysis and case study should determine the relevance and reliability of the model. Thereafter, a final model can be composed which can be applied to IKEA Group, our target company for the research, in order to obtain the final result; IKEA Group is qualified for an IPO, or not. Table of contents Introduction II 1. Rationale 1 2. Situational Analysis 2 2.1 Initial Public Offering 2 2.2 Advantages 3 2.3 Disadvantages 3 3. Theoretical Background 4 3.1 Initial Public Offering 4 3.2 Product market characteristics and performance 4 3.3 Industry characteristics 5 3.4 Initial underpricing 5 3.5 Hot and cold markets and IPO waves 6 3.6 Long-run performance 6 4. Conceptual Model 8 4.1 Hypotheses 9 4.1.1 Hypotheses Independent variables 9 4.1.2 Moderating Variables 9 5. Research design 11 5.1 Unit of analysis 11 5.2 Meta-analysis 11 5.2.1 The hypothesized model 11 5.2.2 The implementation 13 5.3 Case study 15 5.4 The implementation of the results 15 Bibliography 16 Appendices 20 * * Introduction Introduction The consideration of undertaking an IPO is one of the most important and one of the most difficult processes in the lifecycle of a firm. What are the main drivers for a firm to go public, and which trade-offs does this decision...
Words: 11533 - Pages: 47
...journal homepage: www.elsevier.com/locate/jbf Underpricing of IPOs: Firm-, issue- and country-specific characteristics Peter-Jan Engelen a,*, Marc van Essen b a b Utrecht University, School of Economics, Utrecht, The Netherlands Erasmus University, Rotterdam School of Management, Rotterdam, The Netherlands a r t i c l e i n f o a b s t r a c t Using a large firm-level dataset of 2920 IPOs from 21 countries we examine the impact of country-level institutional characteristics on the underpricing of IPOs. Through hierarchical linear modeling we are able to control for firm-specific and issue-specific characteristics and test whether country-specific institutional characteristics add explanatory power to explain the level of underpricing. Our results show that about 10% of the variation in the level of underpricing is between countries. The quality of a country’s legal framework, as measured by its level of investor protection, the overall quality of its legal system and its level of legal enforcement, reduces the level of underpricing significantly. Ó 2010 Elsevier B.V. All rights reserved. Article history: Received 4 July 2009 Accepted 6 January 2010 Available online 11 January 2010 JEL classification: G30 G32 G38 K22 Keywords: IPO Underpricing Legal framework Investor protection Multi-level modeling 1. Introduction When companies go public, a well-documented phenomenon is the underpricing of the initial public offering (IPO). On average, shares seem to be offered at...
Words: 13737 - Pages: 55
...Analysts' Selective Coverage and Subsequent Performance of Newly Public Firms ABSTRACT This study examines the ability of analysts to forecast future firm performance, based on the selective coverage of newly public firms. We hypothesize that the decision to provide coverage contains information about an analyst’s underlying expectation of a firm’s future prospects. We extract this expectation by obtaining residual analyst coverage from a model of initial analyst following. We document that in the three subsequent years, IPOs with high residual coverage have significantly better returns and operating performance than those with low residual coverage. This evidence indicates analysts have superior predictive abilities and selectively provide coverage for firms about which their true expectations are favorable. ∗ Das and Guo are at the University of Illinois at Chicago, and Zhang is at the University of Hong Kong. We thank Eli Amir, Gilbert Bassett, Oleg Bondarenko, Konan Chan, Hsiu-lang Chen, Tim Kruse, Chao-Shin Liu, Malcolm McClelland, Roni Michaely, Tom Nohel, Ram Ramakrishnan, Cathy Schrand, Abbie Smith, Lenny Soffer, WeiLing Song, Robert Stambaugh (Editor), Steve Todd, Beverly Walther, Nan Zhou, an anonymous referee, and seminar participants at the City University of Hong Kong, Indiana University at Indianapolis, the London Business School, Nanyang Technological University, the Office of Economic Analysis at the U. S. Securities and Exchange Commission, Singapore...
Words: 14069 - Pages: 57
..........................................................1 2.2 Problem Discussion………….……...…………………….………………….....4 2.3 Contribution of the study……………………………………….……...………..5 2. Literature Review 6 2.1 Lockup Agreements…………………………………………………………….6 2.2 The Stabilization process-price support………………………………………...7 2.3 A theoretical background to underpricing………………………...……………8 2.4 The adverse selection……………………………………………………...…....8 2.5 How can underwriters affect underpricing………………….……………..……9 2.6 The role of institutional investors……………………………………….……..11 2.7 Issuers’ holdings……………………………………………….………………11 2.8 Underwriters’ purchases…………………………………………………….…12 3. Development of Hypotheses 13 3.1 Information asymmetry & Underwriters’ holdings impact on IPO price………13 3.2 The issue of realizing profits……………………………………………………15 4. Methodology 16 4.1 Dataset and Measurement of Variables…………………………………………16 4.2 Empirical Models……………………………………………………………….17 5. Empirical Results 19 5.1 Trading in the Short Term………………………………………………………19 5.2 The information advantage issue………………………………………………..19 6. Conclusion 20 Reference 21-22 Appendix 23-38 Introduction: 1.1 IPOs background...
Words: 8556 - Pages: 35
...building competitive advantage 4th ed.). It could also be said to be the organization as well as the coordination of an organization as it relates to already set out policies and the achievement of certain objectives. Management is both art and science it is the art of making people more effective than they would have been without you. The science is in how you do that, the science of it lies in a manager’s ability to apply the four basic functions of management as he carries out all his/her duties, namely: Planning, organizing, directing and controlling. The most basic of all these functions is the planning aspect, planning is the foundation of any organization, these are the policies that are set in place whether it has to do with long term goals , objectives, profits. These strategies are set in place and used to achieve companies’ goals. Organizing is assembling and coordinating the human, financial, physical, information and other resources (Bateman Snell (1999) management building competitive advantage 4th ed.). This involves grouping all the resources together and getting them working in order to aid in achieving all the organization’s goals that have been set down in the planning process. Directing is the aspect/ functions has to do with motivating ,supervise, control, and communicating with all employees on what course of action that needs to be carried out ,which aids in achieving company goals . With this aspect people are divided into departments...
Words: 467 - Pages: 2
...TermPaperWarehouse.com - Free Term Papers, Essays and Research Documents The Research Paper Factory Join Search Browse Saved Papers Home Page » Business and Management Market and Nonmarket Environments Any Issues or Changes That Happen in One of These Environments Can Directly Cause Change to the Other. Since Both of These Are so Closely Related and to a Great Importance for a Firm In: Business and Management Market and Nonmarket Environments Any Issues or Changes That Happen in One of These Environments Can Directly Cause Change to the Other. Since Both of These Are so Closely Related and to a Great Importance for a Firm Canadian Business Environment Market and Nonmarket Environments Any issues or changes that happen in one of these environments can directly cause change to the other. Since both of these are so closely related and to a great importance for a firm to run successfully, they have put more focus on managing both aspects of the company. The interrelationship between the market and nonmarket environment is heavily based on the role of management. Since a firm will operate in both the market and nonmarket environments, managers are there to measure the impact one has on the other. The issues found in the nonmarket environment are directly related to the market environment of the firm. The nonmarket environment is a little more difficult to control than the market environment, but each firm is aware of the importance of running...
Words: 620 - Pages: 3
...Why Has IPO Underpricing Increased Over Time? Tim Loughran University of Notre Dame P.O. Box 399 Notre Dame IN 46556-0399 219.631.8432 voice Loughran.9@nd.edu and Jay R. Ritter University of Florida P.O. Box 117168 Gainesville FL 32611-7168 352.846.2837 voice ritter@dale.cba.ufl.edu http://bear.cba.ufl.edu/ritter March 18, 2002 We wish to thank Hsuan-Chi Chen, Craig Dunbar, Todd Houge, Josh Lerner, Alexander Ljungqvist, Donghang Zhang, two anonymous referees, and seminar participants at Boston College, Southern Methodist University, Texas Christian University, and the Universities of Colorado, Houston, Illinois, Indiana, Iowa, Notre Dame, and Pennsylvania for useful comments. Chris Barry, Laura Field, Paul Gompers, Josh Lerner, Scott Smart, Li-Anne Woo, and Chad Zutter generously provided IPO data. Bruce Foerster assisted us in ranking underwriters. Underwriter ranks are available online at http://bear.cba.ufl.edu/ritter/rank.htm. Donghang Zhang supplied useful research assistance. Why Has IPO Underpricing Increased Over Time? Abstract 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 jumping to 65% during the internet bubble years of 1999-2000. Part of the increase can be attributed to changes in the composition of the companies going public. We attribute much of the increase in underpricing, however, to previously latent agency...
Words: 13928 - Pages: 56
...Mr. Andreessen’s strategy was: “give away today and make money tomorrow”. The successful intuition of Andersen lied on the fact that Netscape could reach a high degree of success (make money tomorrow) only if its software was known and used by the public. Thus, Andreessen was committed to distribute of software for free, as well as to a heavy invest in R&D. This strategy generated initial negative cash flows and clearly it was not sustainable in the long run. In order to become highly successful, Netscape had to be able to find the means to continue the invests in R&D, set the industry standard, outperform the competition, and ultimately be profitable. When Andreessen initiated his strategy the market was not competitive. However, Microsoft had the financial means and the reputation to potentially become Netscape’s direct competitor. Netscape was able to set the industry standards and create a good reputation. Ultimately, when the IPO took place, investors perceived the company to be the new leader in the market. Currently, the market is very competitive and the same strategy that made Netscape so successful it may not lead to the same results. New tech companies who focus on high growth, tend to raise capital in three main ways: creating an alliance, through venture capital or through IPO. A strategic alliance, would have provided not only capital but also assets to create economies of scale. It seems that an alley would provide much more than what Netscape needs...
Words: 2467 - Pages: 10
...Investment Banking Giuliano Iannotta Investment Banking A Guide to Underwriting and Advisory Services Professor Giuliano Iannotta Department of Finance ` Universita Bocconi via Roentgen 1 20136 Milano Italy giuliano.iannotta@unibocconi.it ISBN: 978-3-540-93764-7 e-ISBN: 978-3-540-93765-4 DOI 10.1007/978-3-540-93765-4 Springer Heidelberg Dordrecht London New York Library of Congress Control Number: 2009943831 # Springer-Verlag Berlin Heidelberg 2010 This work is subject to copyright. All rights are reserved, whether the whole or part of the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilm or in any other way, and storage in data banks. Duplication of this publication or parts thereof is permitted only under the provisions of the German Copyright Law of September 9, 1965, in its current version, and permission for use must always be obtained from Springer. Violations are liable to prosecution under the German Copyright Law. The use of general descriptive names, registered names, trademarks, etc. in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use. Cover design: WMXDesign GmbH, Heidelberg, Germany Printed on acid-free paper Springer is part of Springer Science+Business Media (www.springer.com) To my family ...
Words: 86170 - Pages: 345
...ELSEVIER Journal of Financial Economics 38 (1995) 243-267 ECONOMICS Underperformance in long-run stock returns following seasonedequity offerings D. Katherine College of Business Administration, Spiess*, John Affleck-Graves University of Notre Dame, Notre Dame, IN 46556, USA (Received July 1994; final version received December 1994) Abstract We document that firms making seasonedequity offerings during 197551989substantially underperformed a sample of matched firms from the same industry and of similar size that did not issue equity. This underperformance persists even after controlling for trading system, offer size, and the issuing firm’s age and book-to-market ratio. It is similar to that previously documented for initial public offerings, suggesting that managers take advantage of overvaluation in both the initial and seasonedequity offering markets. Key words: JEL classijication: Seasonedequity offerings; Underperformance 614; G32 1. Introduction Recently, Ritter (1991) documented long-run underperformance of common stock subsequent to initial public offerings (IPOs), showing that IPOs underperform comparable seasonedfirms’ stock during their first three years of trading. This IPO underperformance has been confirmed in several studies, including Aggarwal and Rivoli (1990), Loughran and Ritter (1994), and Loughran, Ritter, *Corresponding author. This paper has benefited from comments by seminar participants at the University of...
Words: 11917 - Pages: 48
...offered by the PE companies also affects the number of initial public offerings (IPO) on the Dhaka and Chittagong Stock Exchanges. One reason for the small number of current IPOs is that the objects simply have been valued higher by PE companies than they would do in an IPO. PURPOSE: The purpose with this thesis is, from a shareholder’s point of view, to analyze and describe the reasons of making an IPO instead of selling to a PE company. METHODOLOGY: Since the research is based on gathering and understanding information regarding specific persons’ choices and motives, a qualitative approach has been conducted. CONCLUSION: All the main motives of the IPO could have been achieved by selling to PE Company, except the motive of attaining share liquidity. One of the attractive reasons for share liquidity is that shareholders easily can choose between reducing ownership, increasing ownership or remain with existing shares. Another attractive reason is that financial institutions normally become shareholders, which in turn increases the credibility of the company. Eight out of the ten companies had parallel plans to the IPO; most of them including a possible PE buy-out scenario. However, no PE Company offered a price high enough for the individual companies. Either the existing owners received a better IPO price, or the remaining owners believed that the stock exchange would out-perform the PE price offers in the long run. Theory means...
Words: 13249 - Pages: 53
...Companies Go Public? An Empirical Analysis Author(s): Marco Pagano, Fabio Panetta, Luigi Zingales Source: The Journal of Finance, Vol. 53, No. 1 (Feb., 1998), pp. 27-64 Published by: Blackwell Publishing for the American Finance Association Stable URL: http://www.jstor.org/stable/117434 . Accessed: 24/08/2011 01:33 Your use of the JSTOR archive indicates your acceptance of the Terms & Conditions of Use, available at . http://www.jstor.org/page/info/about/policies/terms.jsp JSTOR is a not-for-profit service that helps scholars, researchers, and students discover, use, and build upon a wide range of content in a trusted digital archive. We use information technology and tools to increase productivity and facilitate new forms of scholarship. For more information about JSTOR, please contact support@jstor.org. Blackwell Publishing and American Finance Association are collaborating with JSTOR to digitize, preserve and extend access to The Journal of Finance. http://www.jstor.org THE JOURNAL OF FINANCE * VOL LIII, NO. 1 * FEBRUARY 1998 Why Do Companies Go Public? An Empirical Analysis MARCO PAGANO, FABIO PANETTA, and LUIGI ZINGALES* ABSTRACT Using a large database of private firms in Italy, we analyze the determinants of initial public offerings (IPOs) by comparingthe ex ante and ex post characteristics of IPOs with those of private firms. The likelihood of an IPO is increasing in the company's size and the industry's market-to-bookratio. Companies appear to go public not to...
Words: 19654 - Pages: 79
...Msc Finance & Investment Core Course I: Corporate Finance & Value Creation Lecture 1 3 Modigliani & Miller (1958) ‘The Cost of Capital, Corporation Finance and the Theory of Investment’ 3 Modigliani & Miller 2 6 Modigliani and Miller 3 7 Modigliani & Miller – 1958 4 12 Fama & French (1998) ‘Taxes, Financing Decisions, and Firm Value’ 18 FAMA FRENCH 2 20 Fama & French 3 21 Fama & French – 1998 4 22 Graham (2000) ‘How Big Are the Tax Benefits of Debt?’ 25 GRAHAM (2000) 2 28 Graham 3 29 How big are the tax benefits of debt? John Graham – 2002 4 29 Lecture 2 32 Myers (1984) ‘The Capital Structure Puzzle’ 32 MYERS (1984) The Capital Structure Puzzle 2 36 Myers 3 39 The capital structure puzzle Myers – 1984 4 40 Andrade & Kaplan (1998) ‘How Costly is Financial (Not Economic) Distress? Evidence from Highly Leveraged Transactions that Became Distress’ 44 Kaplan 2 46 Andrade & Kaplan (1998) 3 51 Andrade & Kaplan – 1998 4 52 Lecture 3 56 Myers & Maljuf (1984) ‘Corporate Financing and Investment Decisions when Firms have Information that Investors Do Not Have’ 56 Myers and Majluf 2 61 Myers & Mailuf (1984) 3 66 Myers & Majluf – 1984 4 68 Frank & Goyal (2007) ‘Trade-off and Pecking Order Theories of Debt 74 Frank, Murray and Goyal, Vidhan 2 75 Frank & Goyal (2007) 3 83 Trade-off and pecking order theories of debt Frank & Goyal – 2007 4 85 Lecture 4 92 Ross (1977) ‘The Determination of Financial Structure: the Incentive-Signaling Approach’ 92 ROSS (1977)...
Words: 61282 - Pages: 246
...A Blueprint for Corporate Governance Fred R. Kaen AMACOM AMERICAN MANAGEMENT ASSOCIATION A Blueprint for Corporate Governance This Page Intentionally Left Blank A Blueprint for Corporate Governance Strategy, Accountability, and the Preservation of Shareholder Value Fred R. Kaen American Management Association New York • Atlanta • Brussels • Buenos Aires • Chicago • London • Mexico City San Francisco • Shanghai • Tokyo • Toronto • Washington, D. C. Special discounts on bulk quantities of AMACOM books are available to corporations, professional associations, and other organizations. For details, contact Special Sales Department, AMACOM, a division of American Management Association, 1601 Broadway, New York, NY 10019. Tel.: 212-903-8316. Fax: 212-903-8083. Web site: www.amacombooks.org This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is sold with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional service. If legal advice or other expert assistance is required, the services of a competent professional person should be sought. Library of Congress Cataloging-in-Publication Data Kaen, Fred R. A blueprint for corporate governance : strategy, accountability, and the preservation of shareholder value / Fred R. Kaen. p. cm. Includes bibliographical references and index. ISBN 0-8144-0586-X 1. Corporate governance. 2. Corporate governance—United...
Words: 62038 - Pages: 249
