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Valuation Uncertainty And Ipos
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Book Synopsis Regime Switches in Valuation Uncertainty Risk Within IPO Markets by : Oghenovo A. Obrimah
Download or read book Regime Switches in Valuation Uncertainty Risk Within IPO Markets written by Oghenovo A. Obrimah and published by . This book was released on 2018 with total page 43 pages. Available in PDF, EPUB and Kindle. Book excerpt: Let IPO volume simply be denoted `volume'. This study finds low and high volume regimes within stock markets are, respectively characterized by low or high valuation uncertainty risk, with outcome underpricing is higher yet more disparate in context of high volume regimes. This finding questions the received assumption that clustering of IPOs implies improvements to similarity of IPO listings, that is, demonstrates heterogeneity of IPO quality increases with IPO volume. Given average underpricing increases with severity of valuation uncertainty risk, intertemporally and consistent with expectations, risk is positively correlated with returns. While market returns decrease with severity of valuation uncertainty risk, given valuation uncertainty risk typically is induced by more recent listings, market returns cannot be construed to be good proxies for valuation uncertainty risk. Simultaneously, initial returns to IPOs always are good proxies for severity of valuation uncertainty risk. Totality of study findings demonstrate that absent accounting for contemporaneous differences between prices of risk for IPOs, and prices of risk for previously listed stocks, comparisons of performance of IPOs and previously listed stocks lack robustness.
Book Synopsis Valuation Uncertainty, Institutional Involvement, and the Underpricing of Ipos by : David C. Ling
Download or read book Valuation Uncertainty, Institutional Involvement, and the Underpricing of Ipos written by David C. Ling and published by . This book was released on 1998 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: Unlike operating company initial public offerings (IPOs), REIT IPOs in the 1970s and 1980s were initially overpriced and subsequently under performed other REIT securities in the 100 days after the initial issuance. In contrast, the equity REIT IPOs that have come to the market in the 1990s have been underpriced, on average, by 3.65%. Moreover, these recent REIT IPOs have moderately outperformed seasoned equity REITs in the 100 trading days after issuance. We attribute the initial-day underpricing of recent REITs to two factors. First, there is greater valuation uncertainty because the managers of most recent REIT IPOs have signaled their intentions to actively manage the REITs portfolio of properties. In contrast to the typical pre-1990 REIT IPO, most of the recent REIT offerings can be characterized as quot;management playsquot; rather than as passive conduits for investor's capital. Second, there is significantly more institutional involvement in the more recent REIT IPO market. Both of these factors make these issues more susceptible to the quot;winner's curse.quot; Evidence consistent with these conjectures is presented.
Book Synopsis Information Revelation by : Pamela E. Queen
Download or read book Information Revelation written by Pamela E. Queen and published by . This book was released on 2015 with total page 22 pages. Available in PDF, EPUB and Kindle. Book excerpt: Many investment decisions of firms are hampered with uncertainty, especially decisions involving equity issuance and merger and acquisition (M&A) activity. For initial public offerings (IPOs), this uncertainty is about valuation of shares; for M&As, this uncertainty is about synergistic gains. The underlying cause of the uncertainty is asymmetric information problems among insiders and potential investors. Hsieh, Lyandres, and Zhdanov (2011) propose a merger-driven theory of IPOs in which a 2-stage process is used to eliminate valuation uncertainty. The first-stage, an IPO reveals information and therefore the subsequent second-stage merger yields better benefits. This paper explores this premise by examining the acquisition attitude, acquisition status, long-term return performance, and elapse time between IPO date and date of subsequent M&A. The expectation is the first-stage IPO reveals information which results in better evaluation of the targeted IPOs. Consequently, the second-stage M&As are more efficient and yield positive benefits. For this study, the research question is whether a strategy of 2-stage mergers differs when asymmetric information and levels of uncertainty about an IPO's value change. The results indicate with the enactment of recent regulatory actions to increase information disclosure, a merger-driven theory of IPOs is less likely.
Book Synopsis Valuation Uncertainty and Ipo'S by : Gregory Hebb
Download or read book Valuation Uncertainty and Ipo'S written by Gregory Hebb and published by . This book was released on 2001 with total page 34 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper examines the microstructure trading characteristics of initial public offerings underwritten by commercial banks. The degree of asymmetric information present in the market for these issues is measured by the price impact of trades and the size of the bid-ask spread. If there is more uncertainty in the market about the value of issues underwritten by commercial banks, than these securities should exhibit a greater degree of asymmetric information in their trading environment than non-commercial bank underwritten initial public offerings. More uncertainty could be due to a perceived conflict of interest when commercial banks underwrite securities. Conversely, if the market believes that commercial bank involvement signals firm quality and provides additional information to the public, less asymmetric information will be present in the market. This topic has recently gained in importance with the passage of the Financial Services Reform Act in November 1999 and the inevitable move towards universal banking. We find that, when characteristics of the IPO are controlled for, trades in commercial bank underwritten issues exhibit significantly higher price impacts. This is consistent with greater uncertainty about the value of commercial bank underwritten IPO's and also consistent with the market perceiving a possible conflict of interest on the part of commercial banks.
Book Synopsis Refiling Behavior in the IPO Pricing Process by : Chuanli Sun
Download or read book Refiling Behavior in the IPO Pricing Process written by Chuanli Sun and published by . This book was released on 2004 with total page 74 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper investigates the refiling behavior (updating a new price range in later amendments rather than in the final prospectus) in the price-setting process of Initial Public Offerings (IPOs). 185 out 422 IPOs in our sample (43.8%) have refiled at least once during their pricing period. The probability of refiling is primarily determined by firm-specific characteristics and valuation uncertainty rather than the ex ante uncertainty about the IPOs. The number of refilings is moderately predicted by firm-specific characteristics but seems to depend on the information learned during the pricing period. The refiling price revisions (the deviation between the midpoints of the refiling price range and the file price range) share similar determinants with the traditional price revisions (the difference between the offer price and the midpoint of the file price range). We find that the issuers tend to partially adjust the refiling price with respect to the negative information incurred at the refiling but partially adjust the offer price with respect to the positive information obtained from the refiling to the offering. It provides complementary evidence about how the negative information may be fully incorporated into the offer price. The refiling IPOs tend to have greater price revisions than the non-refiling IPOs but the effects of the refiling behavior on the initial returns is indirect. We investigate the underlying rationales of the refiling behavior. The argument that refiling is to conform to the SEC regulation cannot fully explain this behavior. Our empirical analysis mainly supports the hypothesis of refiling for information-acquisition. Limited evidence is found for the other hypotheses, such as refiling for uncertainty, quality signaling and the positive-feedback strategy.
Book Synopsis Initial Public Offerings: Findings and Theories by : Seth Anderson
Download or read book Initial Public Offerings: Findings and Theories written by Seth Anderson and published by Springer Science & Business Media. This book was released on 2012-12-06 with total page 126 pages. Available in PDF, EPUB and Kindle. Book excerpt: Initial public offerings (IPOs) play a crucial role in allocating resources in market economies. Because of the enormous importance of IPOs, an understanding of how IPOs work is fundamental to an understanding of financial markets generally. Of particular interest is the puzzling existence of high initial returns to equity IPOs in the United States and other free-market economies. Audience: Designed for use by anyone wishing to perform further academic research in the area of IPOs and by those practitioners interested in IPOs as investment vehicles.
Book Synopsis A Theory of Merger-Driven IPOs by : Evgeny Lyandres
Download or read book A Theory of Merger-Driven IPOs written by Evgeny Lyandres and published by . This book was released on 2013 with total page 64 pages. Available in PDF, EPUB and Kindle. Book excerpt: We propose a model that links a firm's decision to go public with its subsequent takeover strategy. A private bidder does not know its true valuation, which affects its gain from a potential takeover. Consequently, a private bidder pursues suboptimal restructuring policy. An alternative route is to complete an initial public offering first. An IPO reduces valuation uncertainty, leading to more efficient acquisition strategy, therefore enhancing firm value. We calibrate the model using data on IPOs and Mamp;As. The resulting comparative statics generate several novel qualitative and quantitative predictions, which complement the predictions of other theories linking IPOs and Mamp;As. For example, the time it takes a newly public firm to attempt an acquisition of another firm is expected to increase in the degree of valuation uncertainty prior to the firm's IPO and it is expected to decrease in the valuation surprise realized at the time of the IPO. We test these and other empirical predictions of the model and find strong support for them.
Book Synopsis Valuation of IPOs with Negative Earnings by : Severin Zörgiebel
Download or read book Valuation of IPOs with Negative Earnings written by Severin Zörgiebel and published by . This book was released on 2016 with total page 57 pages. Available in PDF, EPUB and Kindle. Book excerpt: IPO firms are new to the market and presumably more opaque than other public companies. Determining the value of these firms is challenging and even more difficult when earnings are negative. I value U.S. IPOs between 1994 and 2013 especially with negative earnings using a variety of different and novel techniques. The results suggest that IPOs with negative income are valued higher than other IPO firms. These higher valuations are in large part due to the increased marketing efforts of venture capitalists and underwriters. The findings show that venture capitalists and underwriters have market power to generate a high investor perception of IPOs and create investor demand, which boosts valuation. These high-valued IPOs tend to underperform in the long-run as valuation premia converge toward peer levels. Due to higher levels of uncertainty and overconfidence, IPOs with negative income seem to be different and more exposed to marketing hype than other IPOs.
Book Synopsis Partisan Politics, Divided Government, and the Economy by : Alberto Alesina
Download or read book Partisan Politics, Divided Government, and the Economy written by Alberto Alesina and published by Cambridge University Press. This book was released on 1995-01-27 with total page 302 pages. Available in PDF, EPUB and Kindle. Book excerpt: This book develops an integrated approach to understanding the American economy and national elections. Economic policy is generally seen as the result of a compromise between the President and Congress. Because Democrats and Republicans usually maintain polarized preferences on policy, middle-of-the-road voters seek to balance the President by reinforcing in Congress the party not holding the White House. This balancing leads, always, to relatively moderate policies and, frequently, to divided government. The authors first outline the rational partisan business cycle, where Republican administrations begin with recession, and Democratic administrations with expansions, and next the midterm cycle, where the President's party loses votes in the mid-term congressional election. The book argues that both cycles are the result of uncertainty about the outcome of presidential elections. Other topics covered include retrospective voting on the economy, coat-tails, and incumbency advantage. A final chapter shows how the analysis sheds light on the economies and political processes of other industrial democracies.
Book Synopsis Learning About Target Firms and Pricing of Acquisitions by : Jan Jindra
Download or read book Learning About Target Firms and Pricing of Acquisitions written by Jan Jindra and published by . This book was released on 2014 with total page 61 pages. Available in PDF, EPUB and Kindle. Book excerpt: More information about a firm should lead to a more precise valuation. As more publicly available information accumulates after a firm's initial public offering (IPO), valuations should become both easier to carry out and more precise. We examine how this declining valuation uncertainty affects the pricing in acquisitions with targets that are acquired within ten years of their IPOs. These effects of evolving firm characteristics on acquisition pricing are poorly understood, have received limited attention in the literature, and yet, they offer new, and substantively different, explanations for results that are well-established in the literature, such as the target listing effect. In our sample, we first establish that individual firms' valuation uncertainty declines over time after their IPOs. We then show that acquirer announcement returns decrease and takeover premiums increase with the length of time since the targets' IPOs. When target valuation uncertainty is high, learning about a target should be more costly, but also more important. An acquirer with more information about the target, and a correspondingly more precise valuation of the target, has a competitive advantage compared to less-informed potential acquirers. Such a competitive bidding advantage can reduce competition for the target, allowing the best-informed acquirer to take over the target at a price that is advantageous to the acquirer. As more information about a potential target becomes available over time, the target valuation uncertainty declines, and potential acquirers find it easier to learn about the target. With more competition from potential acquirers, the acquisition price becomes less advantageous to the acquirer, leading to the empirical results we observe. Our study demonstrates how asymmetric information that is resolved slowly over an extended period of time after a target's IPO plays an important role in acquisition pricing.
Book Synopsis Value creation by private equity-backed IPOs. Underpricing and long-term performance in Germany by : Matthias Hetzenecker
Download or read book Value creation by private equity-backed IPOs. Underpricing and long-term performance in Germany written by Matthias Hetzenecker and published by GRIN Verlag. This book was released on 2020-11-19 with total page 76 pages. Available in PDF, EPUB and Kindle. Book excerpt: Bachelor Thesis from the year 2019 in the subject Business economics - Review of Business Studies, grade: 1,0, University of applied Sciences Regensburg, language: English, abstract: This paper examines value creation by private equity-backed IPOs. It gives detailed insights on a mostly US-based research topic analyzing 134 German IPOs from 2002 to 2018, of which 49 were identified as PE-backed, and contributes empirical evidence on the discussion of private equity value creation. The empirical results provide detailed information on whether private equity financing can be a suitable financing source for companies by comparing and analyzing the performance differences between IPOs of companies with and without private equity sponsors. Furthermore, the paper provides empirical evidence on the IPO phenomena of underpricing and negative long-term performance for Germany, differentiating itself from former studies in terms of a broader time horizon and an extensive return calculation methodology. Since the locust swarms debate initiated by SPD politician Franz Müntefering, private equity investors have had to struggle with an extremely bad reputation in Germany. Unpopular measures such as company divestures or mass redundancies to achieve set turnover and return targets reinforce the negative image of financial investors. Accordingly, investor and business magnate Warren Buffet criticized that businesses under private equity control become a piece of merchandise. Nonetheless, the private equity industry continues to boom, reaching new records in terms of global business volume and transactions. Under these circumstances and new evolving discussions, it is essential to take a close look at the business model of private equity firms and to analyze potential short- and long-term value creation in their portfolio companies.
Book Synopsis The Effect of Differences of Opinion and Market Conditions on the Pricing of IPOs by Investment Banks by : Michael O'Connor Keefe
Download or read book The Effect of Differences of Opinion and Market Conditions on the Pricing of IPOs by Investment Banks written by Michael O'Connor Keefe and published by . This book was released on 2012 with total page 44 pages. Available in PDF, EPUB and Kindle. Book excerpt: I model the pricing decision of an investment bank that manages a book-built IPO and faces a stochastic downward sloping demand curve for the firm's IPO shares. The model distinguishes between the effect of differences of opinion and valuation uncertainty on the pricing decision of the investment bank and hence average IPO initial returns. Without relying upon information asymmetries between agents, the model predicts several empirical regularities: average positive initial returns, the ubiquitous use of the over-allotment option, partial adjustment of offer prices to observable information, and extreme initial returns in a bubble. The model provides insight into the how investment banks interpret and price information. For example, news stories about the IPO firm attract potential new investors, many of which are plausibly sentiment investors. My model shows two effects of news stories on the stochastic demand curve. First, the new investors cause an outward shift out in the demand curve. Second, the new investors, many of whom are sentiment investors, increase valuation uncertainty. The investment bank raises the offer price due to the shift in demand caused by news stories, but only partially because of the increase in valuation uncertainty.
Book Synopsis The Effect of Uncertainty on the Underpricing of Ipos by : Jason Draho
Download or read book The Effect of Uncertainty on the Underpricing of Ipos written by Jason Draho and published by . This book was released on 2001 with total page 26 pages. Available in PDF, EPUB and Kindle. Book excerpt: It is often claimed that uncertainty over the firm value will lead to underpricing in an IPO. Surprisingly, there is little theoretical justification for this conjecture with bookbuilt IPOs. This paper analyzes the effect of uncertainty by developing a model of the IPO process that endogenizes the price setting in both the primary and secondary markets. Underpricing will occur if there is uncertainty over the initial secondary market price. This uncertainty decreases as the quality and quantity of information produced in the primary market increases. In the limit the information generated in the primary market perfectly forecasts the secondary market price and the need to underprice is eliminated, even when there is residual uncertainty about the firm value. When the information production is insufficient, underpricing is the premium paid to investors for insuring the firm against an adverse market outcome. Underpricing will then increase in the ex ante uncertainty over the firm value. The results suggest that IPO mechanisms which generate more precise information about the likely secondary market price will require less underpricing.
Book Synopsis CEOs and CFOs on IPOs by : Martijn J. van den Assem
Download or read book CEOs and CFOs on IPOs written by Martijn J. van den Assem and published by . This book was released on 2017 with total page 35 pages. Available in PDF, EPUB and Kindle. Book excerpt: We conducted 46 interviews with CEOs and CFOs who were closely involved in an Initial Public Offering (IPO) in the Netherlands. Among other things, we find that pre-existing relationships are a primary consideration in the selection of the lead manager and other syndicate members. Pre-marketing feedback figures prominently throughout the pricing process. The width of the price range of book-built IPOs is especially driven by valuation uncertainty. There is evidence of strategic underpricing in anticipation of subsequent equity issues and because of management's interest in satisfying new shareholders. Many interviewees believe that the lead manager's business interests have had a strong influence on the allocation of shares. Managerial perceptions of IPO success are largely driven by how well the firm fared in terms of stock price performance, changes in media attention and visibility, and changes related to the retention and recruitment of staff.
Book Synopsis The Pricing of IPOs Post Sarbanes-Oxley by : Jarrod Johnston
Download or read book The Pricing of IPOs Post Sarbanes-Oxley written by Jarrod Johnston and published by . This book was released on 2009 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: The Sarbanes-Oxley Act (SOX) imposes new requirements for firms going public. Many provisions of SOX should improve the transparency of U.S. firms going public and therefore reduce the uncertainty surrounding their valuation. We find that initial returns of initial public offerings (IPOs) in the U.S. have declined since SOX. Furthermore, the aftermarket performance of IPOs since SOX is significantly higher. While the expense of public reporting has increased in the U.S. because of SOX, the valuations of newly public firms at the time of the IPO are subject to less uncertainty and smaller aftermarket corrections.
Book Synopsis Initial Public Offerings by : Michelle Lowry
Download or read book Initial Public Offerings written by Michelle Lowry and published by . This book was released on 2017 with total page 166 pages. Available in PDF, EPUB and Kindle. Book excerpt: The purpose of this monograph is to provide an overview of the IPO literature since 2000. The fewer numbers of companies going public in recent years has raised many questions regarding the IPO process, in both academic and regulatory circles. As we all strive to understand these changes in the market, it is especially important to understand the dynamics underlying the IPO process. If the process of going public is too costly or the IPO mechanism is plagued by too many conflicts of interest among the various intermediaries, then private companies may rationally choose other methods of raising capital. In a related vein, it is imperative that new regulations not be based on research focusing solely on large, more mature firms. Newly public firms have unique characteristics, and an increased understanding of such issues will contribute positively to well-functioning public markets and further growth of the entrepreneurial sector. We also provide a detailed guide to researchers on how to obtain a research-quality sample of IPOs, from standard data sources. Related to this, we tabulate important corrections to these standard data sources.
Book Synopsis The Fairshare Model by : Karl Sjogren
Download or read book The Fairshare Model written by Karl Sjogren and published by Fairshare Model Press. This book was released on 2019-04-25 with total page 535 pages. Available in PDF, EPUB and Kindle. Book excerpt: The Fairshare Model is an idea for a performance-based capital structure that redefines capitalism at the DNA level, where ownership interests are set. When used to raise venture capital via an IPO, it balances and aligns the interests of investors and employees--capital and labor. Author Karl Sjogren utilizes highly approachable language, humor, and analogies, along with insights about capital markets. The result is an eclectic, yet inviting discussion that might occur in a graduate-level symposium on economics, finance, and philosophy. This groundbreaking book focuses on startup valuations--microeconomics. But it also considers the macroeconomic implications of the Fairshare Model for economic growth, income inequality, and shared stakeholding, as well as game theory and financing of blockchain projects. The Fairshare Model has two classes of stock--both vote but only one is tradable. --Investors get the tradable stock. Employees get it too, for actual performance. --For future performance, employees get the non-tradable stock; it converts to the tradable stock based on milestones. With this structure, public investors are more likely to profit when they invest in a company with high failure risk--because they have less valuation risk. By offering a better form of capitalism, The Fairshare Model is a movement book for our times.
