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1 – 10 of 897Ranajit Kumar Bairagi and William Dimovski
The purpose of this paper is to investigate factors influencing the underwriting discount for US Real Estate Investment Trust (REIT) Seasoned Equity Offerings (SEOs).
Abstract
Purpose
The purpose of this paper is to investigate factors influencing the underwriting discount for US Real Estate Investment Trust (REIT) Seasoned Equity Offerings (SEOs).
Design/methodology/approach
The study provides new evidence on determinants of underwriting discounts with a comprehensive dataset of 783 US REIT SEOs from 1996 until June 2010. Ordinary least squares regressions are performed to estimate the effect of the level of representative underwriting along with other potential factors on underwriting discounts.
Findings
The study complements the well‐documented notion of the economies of scale in SEO underwriting discounts. The equally (value) weighted underwriting discounts averaged 4.21 per cent (4.10 per cent) with a declining trend over time. The findings of this study show the statistically and economically significant negative effect of the level of representative underwriting on the underwriting discounts, as well as the significance of the structure of underwriting syndicate in determining the underwriting discounts. The findings suggest that issuers can minimize the costs of raising secondary equity capital by optimally allocating the underwriting business among the underwriters.
Originality/value
This paper adds to the international REIT SEO literature by exploring new evidence behind underwriting discounts. The study includes data before and after the REIT Modernization Act 1999 and during the recent global financial crisis period.
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Cesario Mateus, Jorge Farinha and Nuno Soares
This paper aims to analyse the causes and impact of the significant mean price discounts (25 per cent for financial and 29 per cent for non-financial firms) in rights issues in…
Abstract
Purpose
This paper aims to analyse the causes and impact of the significant mean price discounts (25 per cent for financial and 29 per cent for non-financial firms) in rights issues in the UK using a sample of 268 observations for the period of 1994 to 2012. It is observed that for non-financial companies, the issue terms announcement returns are negatively affected by the discount size, while firm size, growth prospects and good previous stock performance have a positive impact. It is also investigated which factors seem to influence managers to engage in deeper discounts when these are so disliked by investors. Evidence is provided that firms with more leverage, larger bid-ask spreads or suffering losses tend to choose deeper discounts. The authors conclude that managers balance the expected negative reaction of the market to a price discount with the risks of a costly issue failure, with these being higher when the firm experiences losses, has a higher volatility and also when the stock market climate is more adverse.
Design/methodology/approach
The analysis is divided in two stages. In a first step (thereafter pre-announcement), the authors evaluate the firm’s and market conditions that determine the price discount. In a second stage (post-announcement), the authors measure the market reaction to the rights issues announcement by calculating the abnormal announcement returns by cumulating the difference between daily returns (R) and expected market returns (ER) for the period of −2 to 2 relative to the announcement day.
Findings
The authors document that price discounts in right issues for non-financial and financial firms are determined by a set of firm-characteristics and market sentiment. They also bring evidence that price discounts are not arbitrarily determined by firm managers.
Originality/value
The results are consistent with the idea that despite the negative signal to investors conveyed by a significant price discount in the new shares, managers of non-financial companies still engage in substantially price-cutting.
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This is the first REIT paper to seek to empirically examine potential influencing factors on the discounts and underwriting fees of Australian REIT rights issues.
Abstract
Purpose
This is the first REIT paper to seek to empirically examine potential influencing factors on the discounts and underwriting fees of Australian REIT rights issues.
Design/methodology/approach
Using a methodology similar to Owen and Suchard, and Armitage, a sample of 62 A‐REIT rights issues during 2001‐2009 is analyzed. A variety of potential factors influencing discounts and underwriting fees are explored.
Findings
Over A$20 billion was raised by A‐REIT rights issues during 2001‐2009 (this around three times that raised through A‐REIT initial public offerings during the same period). The mean offer price was discounted around 9.5 percent from the current market price and underwriting fees averaged 2.9 percent of gross proceeds raised – both substantially less than for industrial rights issues. The standard deviation of daily returns for the past year appears to influence the percentage discount offered to subscribers. This volatility was particularly noticeable in 2008 and 2009, during the global financial crisis, where new issues were discounted substantially so as to raise equity to repay debt. This historical risk variable appears paramount in determining the discounts to subscribers and fees to underwriters.
Practical implications
A‐REITs seeking to minimize the discounts offered to subscribers and to minimize their underwriting costs with rights issue equity capital raisings must first minimize their share price volatility.
Originality/value
This paper adds to the international costs of capital raising literature of REITs by examining such costs with A‐REIT rights issues and is the first paper to examine factors influencing these costs.
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David P. Stowell and Vishwas Setia
Quintiles Transnational Holdings Inc., the largest global provider of biopharmaceutical development and commercial outsourcing services, grew its revenue at a CAGR of 7.3% and…
Abstract
Quintiles Transnational Holdings Inc., the largest global provider of biopharmaceutical development and commercial outsourcing services, grew its revenue at a CAGR of 7.3% and EBITDA at 13.9% between 2008 and 2012.
The case is set in December 2012–April 2013, when the majority of the firm was owned by founder Dennis Gillings and four private equity firms (Bain Capital, TPG Capital, 3i Capital and Temasek Life Sciences) after it was taken private in a management-led buyout in 2003 and a subsequent buyout in 2008. Five years after the second buyout, the private equity firm owners were looking to monetize their positions and considered different strategic alternatives: M&A sale to strategic or financial buyers, IPO, or capital restructuring through special dividends.
Students will step into the role of an associate at the lead investment bank working with Quintiles. They must consider the case information and determine an IPO strategy, process, potential conflicts, and valuation.
After reading and analyzing the case, students will be able to:
Apply valuation techniques (discounted cash flow (DCF) and publicly traded comparables) in pricing an IPO
Analyze the roles of different parties involved in the transaction
Discuss the process of a company filing for an IPO
Evaluate different strategic alternatives available to a private equity—backed company
Address conflict of interest in management—led buyouts
Apply valuation techniques (discounted cash flow (DCF) and publicly traded comparables) in pricing an IPO
Analyze the roles of different parties involved in the transaction
Discuss the process of a company filing for an IPO
Evaluate different strategic alternatives available to a private equity—backed company
Address conflict of interest in management—led buyouts
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The purpose of this paper is to explore the reasons for the high‐frequency switches of lead underwriters by Chinese listed companies in their seasoned equity offerings. It…
Abstract
Purpose
The purpose of this paper is to explore the reasons for the high‐frequency switches of lead underwriters by Chinese listed companies in their seasoned equity offerings. It contributes to the literature by filling the gap and providing evidence that institutional and non‐market factors could affect listed companies' decisions to switch their lead underwriters in the Chinese capital market.
Design/methodology/approach
This paper employs a numerical measure of listed companies' loyalty to evaluate their frequency of switching lead underwriters, and employs a Logit model and an OLS model to identify the key determinants of switching lead underwriters by Chinese listed companies.
Findings
It is observed that the frequency of switching lead underwriters is very high among Chinese listed companies for their seasoned offerings. It is also found that underwriters' deficient reputation and the lack of industrial experience, together with the depreciation of relationship‐specific assets, could have important impacts on lead underwriters being frequently switched in China. Besides, the frequent switches of lead underwriters could also be attributable to the non‐market supervision and regulatory influences by Chinese authorities over the security underwriting market.
Originality/value
This paper could help further the understanding of the factors that could explain the listed companies' frequent switches of their lead underwriters for their seasoned offerings in China. In addition, this paper has policy implications on how to improve the listed companies' loyalty for regulators in China. These implications could help improve the regulatory environment and promote the overall performance of the Chinese security underwriting market.
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Frank A. Klepetko and David A. Krinsky
As part of the process of raising funds in the United States' public equity markets, chief financial officers are invariably confronted with a somewhat arcane part of the…
Abstract
As part of the process of raising funds in the United States' public equity markets, chief financial officers are invariably confronted with a somewhat arcane part of the underwriting mechanism known as the “Green Shoe” option.
David P. Stowell and Peter Rossmann
Freeport-McMoRan's acquisition of Phelps Dodge created the world's largest publicly traded copper company. JPMorgan and Merrill Lynch advised the acquirer and arranged $17.5…
Abstract
Freeport-McMoRan's acquisition of Phelps Dodge created the world's largest publicly traded copper company. JPMorgan and Merrill Lynch advised the acquirer and arranged $17.5 billion in debt financing and $1.5 billion in credit facilities. In addition, these two firms underwrote $5 billion in equity capital through simultaneous offerings of Freeport-McMoRan common shares and mandatory convertible preferred shares. These financings created an optimal capital structure for the company that resulted in stronger credit ratings. The activities of the equity capital markets and sales groups at the underwriting firms are explored and the structure and benefits of mandatory convertible preferred shares is explained.
To understand the role of investment banks in advising a large corporation regarding an acquisition and related financings in the capital markets. As part of this, the activities of an investment banking firm's equity capital markets group and their underwriting risks are analyzed. Finally, the structure of a mandatory convertible security is reviewed in terms of benefits to both issuers and investors.
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Sean A.G. Gordon and James A. Conover
We investigate whether external investment banks or internal key IPO insiders such as company directors and officers, venture capitalists and institutions that hold an IPO's stock…
Abstract
We investigate whether external investment banks or internal key IPO insiders such as company directors and officers, venture capitalists and institutions that hold an IPO's stock serve as effective monitors of IPO investments over the post-IPO period. We measure median changes in each group's holdings for the sample, finding large changes in these values during a long-run holding period. We find that long-run buy-and-hold returns (BHARs) are positively related to the lead investment bank underwriter reputation and the gross spread demonstrating that the external monitoring by investment banking firms increases the post-IPO firm's value. Holding the underwriter reputation constant, we find that the BHARs are positively related to the gross spread, also indicative of the value of monitoring by external investment banks.
Harry Frischer, Stephen L. Ratner, Sarah S. Gold, Gregg M. Mashberg and Michael S. Lazaroff
The purpose of this paper is to describe the background and reasoning behind the June 18, 2007 US Supreme Court decision in Credit Suisse Securities (USA) v. Billing et al.
Abstract
Purpose
The purpose of this paper is to describe the background and reasoning behind the June 18, 2007 US Supreme Court decision in Credit Suisse Securities (USA) v. Billing et al.
Design/methodology/approach
The paper explains the US District Court for the Southern District of New York's dismissal of two antitrust class action lawsuits filed against a group of investment banks in 2002, the reversal by the US Court of Appeals for the Second Circuit in 2005, and the Supreme Court's rejection of the Second Circuit's analysis in 2007.
Findings
The Court found that, due to the specialized knowledge required to parse the SEC's rules and distinguish permissible from prohibited conduct, there was a “serious risk” that antitrust courts would produce inconsistent results. The Court also expressed a concern that allowing antitrust claims here would weaken the heightened pleading requirements in the Private Securities Litigation Reform Act, which Congress passed to weed out “umeritorious securities lawsuits.”
Practical implications
The decision undoubtedly will have important implications regarding the extent to which the antitrust laws may be applied to other conduct regulated by the securities laws, or in the context of other regulated industries.
Orginality/value
The paper provides practical interpretation and guidance by experienced securities lawyers.
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During 2003, compensation practices for the retail sale of mutual funds came under fire. Recent revelations about failures in the processing of mutual fund breakpoints had…
Abstract
During 2003, compensation practices for the retail sale of mutual funds came under fire. Recent revelations about failures in the processing of mutual fund breakpoints had triggered a more in‐depth investigation into mutual fund marketing and compensation practice by securities regulators, Congress, and the states. This article focuses on the regulation of sales compensation practices primarily as it affects a broker‐dealer selling mutual funds in the retail market. It addresses the regulatory framework for three key compensation practices: (1) the use of non‐cash compensation in connection with mutual fund sales; (2) marketing and compensation arrangements providing enhanced compensation to a selling firm as well as to its sales representatives for the promotion of certain fund securities over others, such as proprietary funds over non‐proprietary funds, preferred funds over non‐preferred funds, and Class B shares over Class A shares; and (3) the use of commissions for mutual fund portfolio trades as an additional source of selling compensation for selling firms, a practice sometimes referred to as ”directed brokerage.“
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