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The purpose of this paper is to investigate whether a firm’s undertaking of a bond IPO influences the monitoring of the private loans granted to the firm by private lenders. If it does, in which direction the monitoring changes?

The author uses both univariate and multivariate analyses to test the hypothesis. For the purposes of this research, the author’s primary data sources are LPC Dealscan, which provides data on private loans; Mergent FISD, which provides data on public bond issues; and the Compustat Industrial Annual Database, which provides the required financial data for the sample firms. The author’s sample covers non-financial US firms for the period of 1991-2010. The author’s final sample consists of nearly 23,000 private loans granted to about 5,500 non-financial US firms.

The major finding of this research is that private lenders increase their degree of monitoring of loans that they extend to a firm after it issues a bond IPO. The results of the two-stage bond IPO anticipation model further strengthen the findings. The evidence suggests that as the firm issues public debt for the first time, private lenders get concerned about the potential increase of agency problems and leverage, and consequently, find it valuable to increase the degree of monitoring of loans. Also, the magnitude of change in monitoring is strongly influenced by the degree of information asymmetry, leverage, profitability, and potential to waste free cash flow.

This paper enhances one’s understanding of the contracting dynamics between private lenders and the firm as it issues in the public debt market. The findings can aid firms anticipate the borrowing conditions they will face if they undertake a bond IPO. Further, the cross-sectional analysis on covenant changes from pre- to post-bond IPO period identifies specific firm characteristics that impact the magnitude of change of covenant intensity and comprehensiveness. As a result, uncertainty regarding post-bond IPO outcomes is reduced for borrowing firms.

This chapter investigates the cost of public debt for firms using a comprehensive sample consisting of 17,368 industrial bond issues from 1970 to 2011. The empirical evidence shows that yield spreads for seasoned bond issues are significantly lower than those for initial bond issues. This seasoning effect is robust across different sample periods, subsamples, and model specifications. On average, the yield spreads for seasoned bond issues are around 50 bps lower than those for initial bond issues. This difference cannot be explained by other bond and firm characteristics. The seasoning effect is more pronounced for firms with higher levels of uncertainty, lower information disclosure quality, and longer time intervals between the first and subsequent issues. Our empirical findings provide supportive evidence for the extant theories that aim to rationalize the information role in determining the cost of capital.

This chapter investigates whether shareholders of firms that enter bond markets for the first time benefit from a reduction in free cash flows or suffer from controlling owners keeping a lock on control. We analyze an international sample of 225 bond initial public offerings (IPOs) from 37 countries. We find that announcement returns are higher for firms with higher free cash flows and lower for firms with controlling owners that have majority control. These effects depend on the level of legal shareholder protection. We find that the disciplinary power of public debt is more important in countries with strong shareholder protection. In countries with weak shareholder protection, the negative lock on control effect dominates.

The purpose of this study is to identify selected information from the prospectus that might signal the initial public offering (IPO) offer price.

This study uses cross-sectional data for a 14-year period from 2000 to 2014 in examining hypotheses relating to Shariah-compliant status, institutional investors, underwriter ranking and shareholder retention, with respect to their associations with the offer price of the IPOs. Further, this study uses ordinary least squares (OLS) for all models, including the models for both subsamples of Shariah- and non-Shariah-compliant IPOs. As for robustness, this study incorporates the quantile regression and quadratic model.

The results tend to provide support for the argument that firms with Shariah-compliant status reflect lower uncertainty and project better signalling of quality due to greater scrutiny by the government and thus are able to offer IPOs at higher prices. Similarly, firms with a higher proportion of shareholder retention indicate lower risks as insiders forego their options to diversify their portfolio, and hence could price their IPOs higher. Finally, the involvement of institutional investors and higher underwriter ranking could be used by firms to disregard information asymmetry, and therefore, the issuer might have to discount the IPO offer price.

This study focuses solely on information in the prospectus that should not be disregarded by the investors in valuing the appropriateness of the IPO offer price. This study contributes in terms of providing a better understanding of the determinant factors of the IPO offer price of the firms which are Shariah-compliant.

This paper provides evidence for the determinants of the IPO offer price in a fixed pricing mechanism for both Shariah-and non-Shariah-compliant IPOs.

The purpose of this paper is to examine how policy instability is priced in interest rates. Policy instability refers to the likelihood that the current policy will be changed in the future in the absence of political power shifts.

Chinese government’s experimental policy-making approach provides an ideal set of frequent policy flip-flops which allows us to identify the effect of policy changes.

Conditional on the bureaucratic quality of policymaking, a good-quality policy reversal is related to reductions in interest rate term spread and volatility; a bad-quality policy reversal is related to increases in the spread and volatility. The bureaucratic quality is multi-dimensional and the moderating effect is stronger on interest rates when it is measured more precisely.

First, we can use the interest rate dynamics to infer the policy risk premium, which is a more objective market indicator of the bureaucratic quality of the policy change. Second, the study is among the first that documents the pricing of policy instability can be moderated by the bureaucratic quality. The results indicate that it is important for a government to be responsive and consistent in liberalizing the financial market. It will lead to reduced cost of capital and volatility for investors and firms in the economy. Third, given that the bureaucratic quality is multi-dimensional and produces stronger impact jointly, a country shall continue to improve on different aspects of the bureaucratic quality. Although the study is based on the empirical evidence from Chinese policy environment, the results can be broadly applied to any developing economies that intend to liberalize the market to spur economic growth.

This study proposes a theoretical model for measuring the greenness factors of a firm. We develop the multifactor utility function and find that the proportion of investment in green bonds is higher if greenness factors account for by a firm and vice versa. Moreover, we further develop the global aspects of greenness measures which identify how much level of greenness is maintained by a firm to make the environment green. In terms of reduction in emissions based on global measures, we report that the proportion of investment in green bonds is higher. This study argues that the difference between firm-related and global measures of greenness refers to distortion in portfolio allocation. Lastly, we compare the results of five Asian countries and report that Japanese firms are appropriately following the greenness measures while the firms operating in developing countries including Indonesia, Malaysia, Pakistan, and Thailand are far behind in implementing the greenness measures.

Going public with a new stock issue is a satisfying, perplexing, and complicated process, with an aura of mystery and potential for pitfalls. As a method for capital infusion, however, initial public offerings (IPOs) have emerged as a significant force in allowing small, vigorous companies the growth momentum to become primary players in their marketplaces.

The funding of innovation is explained by typical cost-based financial approaches. This paper breaks away from such tradition, and the purpose of this paper is to propose an alternative view where innovation funding decisions are strategic and concern interactions between actors – each with their own characteristics and strategic intentions – project features, and traits of the setting in which interactions take place.

This paper builds up an alternative framework to understand how innovation is financed by considering the interplay of innovation characteristics, the strategic reasons of project owners and funders, and the role of the matching environment and conditions. This proposal includes explanatory elements overlooked by extant theories. An illustrative case is presented to support the need for this proposal.

The framework proposed proves useful to better understand innovation funding cases where the traditional financial theory does not suffice.

Innovative companies may improve decision making about resource allocation to innovation; innovation funders may refine their decision-making criteria and implementation; and policy makers and practitioners need to devise better supporting strategies for innovative companies.

This proposal considers a continuum of funding options where supply/demand will match on the grounds of strategic decisions made during the interaction itself, under certain contextual conditions. Hence, it enriches the understanding of strategic decisions regarding firm capital structure and investment theory when it comes to funding innovation.