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Several academic studies have examined the investment performance of initial public offerings (IPOs). Since the underwriters desire to have the offering sell out quickly…
Several academic studies have examined the investment performance of initial public offerings (IPOs). Since the underwriters desire to have the offering sell out quickly, they have an incentive to underprice the securities offering. A number of studies have found that new equity issues are generally underpriced and produce positive abnormal short‐term returns. Like IPOs, spin‐offs are issues which are new to the public capital markets. However, unlike IPOs, spin‐offs do not involve an underwriter which determines the offering price of the security. Spin‐offs are also similar to corporate sell‐offs in that a parent company makes a decision to divest a division or subsidiary; however, in a spin‐off the business unit is not sold for cash or securities. Instead, spin‐offs occur when a parent corporation distributes its entire holdings of stock in a subsidiary on a pro‐rata basis to the parent's shareholders. These transactions have the effect of completing the separation of the assets and liabilities of the parent and the subsidiary. Thus, two separate public corporations with the same proportional equity holdings now exist whereas only one firm existed previously.
According to Thucydides, writing in 416 BC, when the Melians suggested that the Athenians accept Melian neutrality in the war against Sparta, the Athenians replied, “No, for your enmity doth not so much hurt us as your friendship will be an argument of our weakness and your hatred of our power amongst those we have ruled over” (Vasquez, 1996, p. 16). Realists consider the Melian Dialogue to be an immutable lesson that morality in itself is not sufficient against power (Vasquez, 1996, p. 1). Edward H. Carr (1939) articulates the main tenets of classical realism in The Twenty Years’ Crisis 1919–1939. According to Carr, “Internationally, it is no longer possible to deduce virtue from right reasoning, because it is no longer seriously possible to believe that every state, by pursuing the greatest good of the whole world, is pursuing the greatest good of its own citizens, and vice versa” (p. 12). Thus, the eternal dispute, as Albert Sorel put it, is “between those who imagine the world to suit their policy, and those who arrange their policy to suit the realities of the world,” and the realists resolved it by making policies that suit the world (as cited by Carr, 2001, p. 12).