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11 – 20 of 283Marcus Gerbich, Mario Levis and Piers Venmore‐Rowland
Summarizes the regulatory environment and practices for providing aproperty company with a public listing. Furthermore, reports evidence ofthe direct and implied costs of…
Abstract
Summarizes the regulatory environment and practices for providing a property company with a public listing. Furthermore, reports evidence of the direct and implied costs of undertaking a property initial public offering. The results indicate that choice of issue method and timing are key decisions to be made by property company financial managers.
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A.K.M. Waresul Karim, Kamran Ahmed and Tanweer Hasan
The purpose of this paper is to investigate the impact of audit quality and ownership structure on the degrees of accuracy and bias in earnings forecasts issued in initial public…
Abstract
Purpose
The purpose of this paper is to investigate the impact of audit quality and ownership structure on the degrees of accuracy and bias in earnings forecasts issued in initial public offering (IPO) prospectuses in a frontier market, Bangladesh.
Design/methodology/approach
The paper uses both univariate and multivariate tests on the sample of 75 IPOs. The paper employs the tests to see the association between the degree of forecast bias and three corporate governance variables.
Findings
The results reveal that the magnitude of earnings forecast bias is significantly explained by issuer, auditor reputation, proportions of capital raised from domestic as well as foreign investors, and whether the IPO firm is a start-up venture. Underwriter prestige, length of the issuing firms' operating history, leverage, whether the firm went public during a stock market boom, and forecast horizon do not appear to be statistically significant in explaining the degree of forecast bias.
Originality/value
Although auditor reputation and the proportion of equity retained by pre-IPO owners have been investigated in several studies on IPO forecast accuracy and/or bias, no study has attributed them to corporate governance as a whole by combining auditor reputation, and ownership categories held by small private investors and foreign portfolio investors.
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Paul Mather, Alan Ramsay and Adam Steen
This paper investigates the use of graphs, selection of variables to graph and construction of graphs in prospectuses issued by Australian companies making their initial public…
Abstract
This paper investigates the use of graphs, selection of variables to graph and construction of graphs in prospectuses issued by Australian companies making their initial public offering (IPO) of shares to the Australian capital market. The paper formulates and tests hypotheses concerning selectivity in the use of graphs and distortion in the construction of graphs presented in IPO prospectuses, as well as providing descriptive evidence about the use of graphs in such prospectuses. Results show that firms enjoying improving profit performance are significantly more likely to include graphs of key financial variables in their prospectuses than firms suffering deteriorating profit performance. Thus, similar to studies of graphs in annual reports, evidence of selectivity in the inclusion of graphs is found. No significant relationship is found between performance on the variable being graphed and distortion in the construction of the graph. When the graphs are split between those covering key financial variables and other variables, a significant relationship is found in both categories. For graphs of other variables, a significant positive association is found between performance and distortion. However, the relationship for key financial variables is in the opposite direction to that suggested by impression management. Further analysis identifies significant sub‐period differences in selectivity and distortion which are consistent with the view that the major regulatory and institutional changes outlined in the paper, reduced the extent of selectivity and graphical distortion in the post‐1991 period. As far as we are aware, this is the first study reported in the literature to investigate the use of graphs in prospectuses. The results also have policy implications for the regulatory authority in Australia.
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This paper aims to critically examine the applicability of disclosure‐based regulation in a pre‐emerging securities market.
Abstract
Purpose
This paper aims to critically examine the applicability of disclosure‐based regulation in a pre‐emerging securities market.
Design/methodology/approach
The paper presents, by using archival data, an analysis of prerequisites for the usefulness of the disclosure philosophy making reference to some Asian securities markets with special reference to the contemporary experiences of the Bangladesh securities market.
Findings
The paper concludes that the disclosure philosophy itself is not a panacea, an effective disclosure regime requires a certain level of structural and infrastructural development of the market, and that a particular securities market should follow a paternalistic merit regulation until the attainment of that progress.
Originality/value
This paper contributes to the understanding of effectiveness of the disclosure philosophy for the regulation of securities markets from the perspective of investor protection.
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Michele Meoli, Andrea Signori and Silvio Vismara
– The purpose of this paper is to relate the fees paid to IPO underwriters to the nature and quality of the services they provide.
Abstract
Purpose
The purpose of this paper is to relate the fees paid to IPO underwriters to the nature and quality of the services they provide.
Design/methodology/approach
Controlling for the characteristics of the firm going public, the risk associated with the offering, and the reputation of the underwriter, the authors study on a sample of Italian IPOs whether a formal commitment by underwriters to provide ancillary services allows them to charge higher fees.
Findings
The authors document that asking underwriters to stabilize stock price is costly to the issuer, while to support liquidity is not. The authors’ also show that underwriters stabilize IPOs that really need it, whereas the provision of liquidity support does not seem to be always aligned with the issuer’s interest.
Originality/value
Investigating the Italian underwriting market is instructive for two main reasons. First, the institutional setting in IPOs is similar to most continental European countries, but significantly different from the US market. For instance, allocation policies in US IPOs are discretionary for both retail and institutional investors, while in Europe shares cannot be discretionarily allocated to retail investors. Second, the Italian market offers the opportunity to study the going-public decision outside the typical Anglo-Saxon financial systems. This is of interest because while both the UK and the USA have well-developed equity markets and a related industry of financial intermediation centered on providing equity, our analysis sheds light on financial intermediation of IPOs in a bank-centered system.
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The purpose of this paper is to analyze the effect of the reputation of underwriters and sponsoring representatives on initial public offering (IPO) underwriting fees, and further…
Abstract
Purpose
The purpose of this paper is to analyze the effect of the reputation of underwriters and sponsoring representatives on initial public offering (IPO) underwriting fees, and further investigates the role of ownership and political connection.
Design/methodology/approach
The methodology includes three models. Model 1 empirically investigates the effect of underwriter’s reputation on underwriting fee. Model 2 studies the effect of sponsoring representative’s reputation on underwriting fee. Model 3 further examines the effect of underwriter’s reputation and sponsoring representative reputation on the underwriting fee controlling for the impact of ultimate controlling ownership and political connection.
Findings
The study documents that underwriters’ and sponsoring representatives’ reputation can result in reputational premiums. In the IPO of state-owned enterprises (SOEs), the reputation of underwriters and sponsoring representatives does not significantly affect the underwriting fees. In the IPO of non-state-owned enterprises (NSOEs), there is a significantly positive correlation between underwriters’ and sponsoring representatives’ reputation and underwriting fees. Further research results show that, on the one hand, the effect of underwriters’ and sponsoring representatives’ reputation on underwriting fees is not significant in the IPO of NSOEs with political connection. On the other hand, underwriting fees are positively associated with underwriters’ and sponsoring representatives’ reputation in the IPO of NSOEs without political connection.
Research limitations/implications
The sponsoring representative’s fee is not disclosed separately, which makes it difficult to distinguish the incremental effect from underwriter’s services and reputation.
Practical implications
NSOEs relative to SOEs are more likely to pay higher underwriting fees for hiring underwriter and sponsoring representative with better reputation during the process of IPO.
Social implications
The reputation of underwriter and sponsoring representative does not matter to SOEs but does matter to NSOEs. However, NSOEs’ political connection affects underwriter fees.
Originality/value
This paper provides new evidence of sponsoring representatives’ reputation and political connection on the underwriting fees in the IPO in Chinese SOEs and NSOEs.
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Khaled Abdou and Mehmet F. Dicle
The purpose of this paper is to investigate whether all of the risk factors were priced during the internet bubble period.
Abstract
Purpose
The purpose of this paper is to investigate whether all of the risk factors were priced during the internet bubble period.
Design/methodology/approach
A unique hand collected dataset was used from public prospectuses for companies that issued an initial public offering during the internet bubble period. Three hypotheses were proposed: the risk factors mentioned in the prospectus are important for IPO trading and therefore affect IPO underpricing; risk factors affect the IPO deal attributes; and the number of risk factors cited by the issuing firm is affected by direct participants such as venture capitalists and investment bankers.
Findings
It was found that hi‐tech dummy played a significant role during the bubble period. Moreover, not all risk factors are regarded important, some of them are not significant at all as predicted by first hypothesis. The most striking observation is the negative economic significance of the risk factor no prior market for the traded stock. This reveals that, traders are selective in valuing risks and may value some factors as opportunities and not as risk factors. In addition, the results reveal that risk factors do affect the deal attributes as predicted by our second hypothesis. Also, the pricing of these risk factors are not different between retail and hi‐tech companies. Regarding the participants, it was found that venture capitalists and investment bankers have a significant statistical and economic effect on the number of risk factors reported in the prospectus.
Originality/value
The paper contributes to the literature by investigating the IPO underpricing phenomenon in the internet bubble period.
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The purpose of this paper is to examine the basis of the complaints against banks which sold private label securities to Fannie Mae and Freddie Mac before the financial crisis…
Abstract
Purpose
The purpose of this paper is to examine the basis of the complaints against banks which sold private label securities to Fannie Mae and Freddie Mac before the financial crisis. The examination shows that all but one of the cases was settled out of court. Nomura and RBS went to court, but the case against them was based on dubious evidence and on strict liability which only enabled the judge to set aside relevant evidence. The Securities and Exchange Commission’s evidence against senior executives of Fannie and Freddie shows that they deliberately purchased PLSs based on subprime loans to meet the government’s housing targets.
Design/methodology/approach
The research was based on publicly available documents, including details of the Federal Housing Finance Agency’s (FHFA) complaints against the banks in question, the settlement agreements published by the DoJ, FHFA and SEC. Furthermore, it includes documentary evidence from the Financial Crisis Inquiry Committee and Senate Committees, the full transcript of the trial, opinions of the judge for the trial and the judgement.
Findings
The findings are that many have concluded that settlements out of court fail to satisfy the demand for justice. They have been criticised as a trade-off between the prosecutor and the bank, with a view that the imposition of large fines is to pay back taxpayers’ money spent on rescuing the banks, rather than punishing those responsible. Such fines do little, if anything, to change the behaviour of banks. As a result, the Department of Justice issued a memorandum on 9 September to focus on individual accountability for corporate wrongdoing. It remains to be seen how many cases against senior executives will result from the change in direction.
Research limitations/implications
The implications of the research are that it is important even in the aftermath of such a serious if not devastating financial crisis to ensure that the laws are properly applied and can stand up to any challenge that it has been stretched to obtain the results the administration of the day wants to see. In addition, care must be taken over both the imposition of large fines and the use to which the monies should be put. All the parties involved in bringing about the crisis should be held to account. The major cases against the banks have almost all been “resolved”. A change in direction has now taken place.
Practical implications
The practical implications of holding individuals to account should now be tackled. It requires a careful examination of the laws and regulations already in place to ensure that it is clear within a bank as to who is responsible for what. It will only be possible to hold senior individuals to account if the laws are clear and if all the evidence is not hidden. It may also require a review of the contracts under which senior executives are employed, because to remove a person from his post and then find that he still has a large pension pot and bonuses due may not result in justice either. A delicate balancing act is required because banks require highly competent and motivated individuals to run them.
Social implications
If a very large fine is imposed on a bank, the shareholders and customers pay. The shareholders will mostly own the shares through their pensions and their savings in mutual funds.
Originality/value
There have been few studies of all the cases against the banks brought by the DoJ and FHFA and still fewer have recognized the fact that government housing policy was the source of the extent of the subprime mortgages.
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A subprime loan to straw borrower Charlotte Delaney was used to fraudulently strip equity from an elderly African American couple in Chicago. Following this loan from origination…
Abstract
A subprime loan to straw borrower Charlotte Delaney was used to fraudulently strip equity from an elderly African American couple in Chicago. Following this loan from origination to securitization highlights responsibility for the wave of early payment default loans that contributed to the implosion of subprime lending. The Delaney loan, funded by subprime lender Mortgage Investment Lending Associates (MILA), was representative of the stated income, no down payment loans that defaulted in 2006 at the peak of the subprime bubble. MILA was suffering financially from demands to repurchase loans and was insolvent as early as 2004. MILA underwriters approved the Delaney loans despite obvious indications of fraud. Goldman Sachs bought MILA loans for inclusion in a $1.5 billion residential mortgage-backed security. Goldman Sachs warned investors that subprime loans were high risk and promised extensive due diligence. When subpoenaed for evidence of due diligence on MILA, Goldman Sachs provided none. The drive to generate profits through securitization explains why Goldman Sachs did not investigate and did not uncover MILA's inability to repurchase a growing portfolio of early payment default loans. Competition to buy subprime loans for securitization relieved lenders like MILA of pressure to verify that their loans were sustainable and not fraudulent.
Bill Dimovski, Rebecca Ratcliffe, Christopher Ratcliffe, Monica Keneley and Scott Salzman
The purpose of this paper is to investigate the accuracy of Australian Real Estate Investment Trust (A-REIT) initial public offering (IPO) dividend forecasts between 1994 and 2016.
Abstract
Purpose
The purpose of this paper is to investigate the accuracy of Australian Real Estate Investment Trust (A-REIT) initial public offering (IPO) dividend forecasts between 1994 and 2016.
Design/methodology/approach
This study compares the dividend forecasts of A-REIT IPOs for the first dividend forecast period in the prospectus, with the actual dividend declared for that forecast period. As well as simple descriptive summary measures, this study also employs an exact logistic regression approach to examine the factors that might influence the IPOs achieving or exceeding the dividend forecast.
Findings
The study identifies that the dividends declared, on average, were greater than the dividend forecast and that more than nine out of ten of the IPOs listed after 1999 achieved or exceeded their prospectus forecast. In addition the authors observe positive mean forecast errors, suggesting dividend forecasts in A-REIT IPOs, are cautiously biased. This is in contrast to the industrial company data reported in Brown et al. (2000) which suggest dividend forecasts are optimistically biased. The study also finds the A-REIT IPOs that did not forecast a dividend, generally did not pay a dividend.
Practical implications
The results will inform dividend seeking institutional and retail investors of the investment opportunities in A-REIT IPOs.
Originality/value
This paper adds to the discussion of the relative predictability of dividends of A-REIT IPOs compared to industrial company IPOs.
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