Search results

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.

In this study, we examine the relationship between political connections of private firms and the initial public offering process. Using registration statement information, we create a unique database of politically connected IPO firms. We find that political connections are substitutes to high-quality underwriters and big four auditors. Politically connected firms manage earnings more highly upward than non-connected firms prior to the public offering. Politically connected firms also exhibit less underpricing than non-connected firms. Finally, politically connected IPO firms have superior post-IPO returns relative to non-connected IPO firms.

Within the past few years, a new phenomenon has taken place among the world's leading microfinance institutions (MFIs) – entry into new capital markets through initial public offerings (IPOs). “Going public” launches MFIs into a new frontier, not only presenting challenges but also providing new opportunities for the institutions and the clients they serve.

This study examines the impact of the trading volume on Initial Public Offering (IPO) initial return in the context of an emerging market from January 2006 to December 2016. Models consist of hierarchical and multiple regressions have been evaluated. Our results show, firstly, IPO provides an average of 21.90% of initial return to investors on the first trading day, 9.08% of return on the second day of trading, and 7.12% of return on the third day of return. Secondly, there is a positive relationship between the oversubscription ratio and initial return and no relationship between trading volume and initial return on the first three trading day. Thirdly, the trading volume does not act as a moderator that worsens the relationship between the oversubscription ratio and initial return. Lastly, this study shows that investors should actively participate in the subsequent trading of an IPO. Higher participation will bring greater liquidity and shareholder wealth in the stock market. To the authors' knowledge, this is the first study on the moderating effect of trading volume on IPO initial return in an emerging market.

This chapter presents evidence of persistence in pricing new corporate bond issues. Both transition matrix and regression analyses show that cross-sectional differences in the yields of initial public bond offerings across issuers persist over time, and the persistence effect is stronger for firms with no rating changes, less frequent bond issuance, and higher information asymmetry. Our findings support the hypothesis of the “ride on past” behavior and confirm the value of information production accumulated from the past bond issuances for the pricing of newly issued bonds.

Using initial public offering (IPO) involuntary delisting data, this chapter examines whether and how motivated institutional investors affect the survivability of IPO firms. The empirical evidence shows that the likelihood of future delisting is much lower for IPOs with more motivated institutional investors. This impact is more pronounced for firms with higher information asymmetry. The motivated institutional investors also facilitate better post-IPO operating performance. The results are consistent with the prediction of the limited attention theory.

To date there is little understanding of the factors that impact the survival of foreign IPOs after they list on US stock exchanges. In this study, we examine how foreign IPO survival is contingent on institutional factors associated with the firm’s home country. We also explore how corporate governance and organizational identity influence the survival of foreign IPOs in the United States. Results suggest that the US institutional environment supports foreign firms with more independent and professional leadership, and that knowledge-intense organizations have higher chances of long-term success after listing on US exchanges.

In M&A markets, acquirers face a hold-up problem of losing the value of investments they make in due diligence, negotiations, and post-acquisition planning if targets would pursue the options of waiting for better offers or selling to an alternative bidder. This chapter extends information economics to the literature on M&A contracting by arguing that such contracting problems are more likely to occur for targets with better outside options created by the information available on their resources and prospects. We also argue that acquirers address these contracting problems by using termination payment provisions to safeguard their investments. While previous research in corporate strategy and finance has suggested that certain factors can facilitate an acquisition by reducing a focal acquirer’s risk of adverse selection (e.g., signals, certifications), we note that these same factors can make the target attractive to other potential bidders and can exacerbate the risk of hold-up, thereby leading acquirers to use termination payment provisions as contractual safeguards.

This chapter investigates attention theory by examining retail investors' true intention to purchase. Attention theory indicates that investors, and especially retail investors, typically invest in stocks about which they are aware. Previous studies test attention theory by analyzing stock price behavior or trading volume. However, stock prices and trading volume are primarily driven by institutional investors rather than retail investors. We examine investor attention using initial public offering (IPO) subscriptions in Taiwan because only retail investors are allowed to subscribe to Taiwanese IPOs. We use media coverage as a measure of passive retail investor attention and Google search volume as a measure of active retail investor attention. Our results reveal that active attention has a more profound relationship with retail investor IPO subscriptions than passive attention does. Additionally, information about the value of IPOs taken from trading prices in the pre-IPO market mitigates the effects of attention theory.

This chapter investigates the relevance of accounting and other information to valuing Internet IPOs during the years 1998–2000 in Europe and the United States. We show that market value is negatively related to net income in the Internet bubble period before April 1, 2000 in both European and U.S. IPO markets. This is consistent with an Internet firm’s start-up expenditures being considered as assets, not as costs. Furthermore, for the U.S. IPO market, we find that free float is value relevant during the Internet bubble. Underwriters and issuers restricted the supply of shares at the IPO. This drove up market prices as investors were keen to buy Internet IPO shares.