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Initial Public Offerings
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6/24/2010
What A Turbulent, Often Unpredictable IPO Can Teach
What went wrong? All Google wanted, in the beginning, was to share the wealth by giving its employees some equity and to stay quirky and creative. That led to a Dutch auction IPO, but it did not turn out exactly as planned. Google's CEO, Eric Schmidt, explains.
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10/29/2009
When Negative Earnings Produce Higher IPO Valuations
Professors Rajesh Aggarwal, Sanjai Bhagat, and Srinivasan Rangan studied 1,655 IPOs, looking for the fundamentals most favored by investors. They discovered that the characteristics sought by IPO investors vary with market cycles and that negative earnings are not always seen as a bad thing.
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10/29/2009
Rising From The Ashes, IPOs Revive In The Capital Markets
Investment bankers are looking forward to the revival of the IPO market. Peter Lee reports that IPOs by venture-backed tech companies in America, deals in Brazil and China, and hedge funds looking for convertible bonds are leading the resurgence.
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9/24/2009
Underpricing Expands In A Bubble
Finance professor Jerry Coakley, private equity specialist Leon Hadass, and finance lecturer Andrew Wood analyze underpricing and the role played by investment bankers and venture capitalists for IPOs on the London Stock Exchange from 1985 to 2003. The bubble years in the late 1990s saw the highest levels of underpricing, the steepest declines in operating quality, and the most money left on the table.
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9/24/2009
Competitive IPO Attempts To Rein In Last-Minute Underpricing
Significant IPO underpricing leaves too much money on the table. Yet once the underwriter is chosen, the issuer loses the power to stop last-minute underpricing. Finance professors Tim Jenkinson and Howard Jones suggest a solution: the competitive IPO, in which underwriters compete, step by step, for a role in the offering process.
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9/24/2009
Withdrawing An IPO Affects Pricing The Second Time Around
Sometimes an issuer decides to withdraw its IPO but later returns to the market with a repeat offering. Doing so, according to research by finance professors Qin Lian and Qiming Wang, has unexpected consequences. The stock will be discounted the second time around, although switching underwriters could mitigate the impact.
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8/27/2009
Analysts' Downgrades And Upgrades Sway IPO Performance
During the first three years after an IPO, investors rely more heavily on analysts for information than in later years, Deepika Bagchee asserts. Analysts associated with the IPO carry particular weight with investors, and their downgrades are especially influential. Stocks of older companies also rise on upgrades and sink on downgrades, but the magnitude of the response is smaller.
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8/27/2009
A Historical Perspective On Why IPO Underpricing Persists
Finance professors David Chambers and Elroy Dimson expected to find that IPO underpricing in Great Britain has decreased over time, given the evolution of regulatory and market practices, but their study of British IPOs from 1917 to 2007 shows quite the opposite. What may have begun as a low-key way to raise money from neighbors has become quite different, and underpricing is one consequence.
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8/27/2009
Greater Transparency Reduces IPO Underpricing
Sarbanes-Oxley improves corporate transparency, but can it also reduce IPO underpricing and improve aftermarket performance? According to a study by finance professors Jarrod Johnston and Jeff Madura, the law apparently does ameliorate investors' uncertainty and allows issuers to leave less IPO money on the table.
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5/29/2009
Underwriters' Valuation Methods Prove Generally Accurate
Are the methods used by underwriters to set an IPO price (whether discounted free cashflow, the dividend discount model (DDM), or price-to-earnings, price-to-cashflow, and other multiples valuation methods) equally accurate? Finance professors Marc Deloof and Wouter De Maeseneire and researcher Koen Inghelbrecht compared IPO prices with the stock's price a month after the IPO, seeking the best valuation technique.
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12/2/2008
Smooth The Path To The Public Markets By Merging Into A SPAC
Frustrated by the moribund IPO market? Looking for an easier way to get into the public arena? Consider an increasingly popular alternative: merging into a special purpose acquisition company. Financial advisor Robert Berger, through case studies of three recent successful SPACs, advises that the route is not risk-free but is worth consideration.
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12/2/2008
IPOs During A Hot Market Benefit Issuers But Not Investors
Exercise greater discipline when investing in an enthusiastic hot market. Weaker, riskier issuers love the heat, but the average IPO in such a market underperforms over the long haul. Research by finance professors Jerry Coakley, Leon Hadass, and Andrew Wood shows the connection.
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11/3/2008
Degree Of Underpricing Reflects Level Of Aftermarket Risk
To determine the relationship between aftermarket risk, underpricing, venture capital backing, and underwriter reputation, finance professors Kimberly Gleason, Jarrod Johnston, and Jeff Madura examined a decade's worth of IPOs. Offerings using better-known underwriters display greater risk in the form of higher short- and long-term beta, a surprising conclusion.
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7/9/2008
Good Governance Not Always Key To IPO Underpricing And Long-Term Performance
At first glance, one might surmise that an issuer's good governance practices would always reduce its IPO underpricing and enhance its long-term performance. Professor of finance Juan Dempere, studying IPOs from bank holding companies, discovers that the conventional wisdom is off the mark.
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5/29/2008
IPO Block Trades Can Foretell Performance
Block sales after an IPO are related to the offering's value relative to an estimate of intrinsic value, opening-trade return, and offering size. Overvalued IPOs experience more block sales than undervalued IPOs, finance professors Kuntara Pukthuanthong-Le and Nikhil Varaiya discovered, and IPOs with high numbers of block sales outperform those with fewer block sales initially, but not for long. The research also shows that block traders have an advantage over other traders, but whether it is based on superior information or superior valuation capabilities remains unclear.
