Table Of ContentINITIAL PUBLIC OFFERINGS:
FINDINGS AND THEORIES
Innovations in Financial Markets
and Institutions
Editors:
Robert Eisenbeis and Richard W. McEnally
University of North Carolina at Chapel Hill
Chapel Hill, North Carolina, U. S. A.
Other books in the series:
England, C. and Huertas, T.:
The Financial Services Revolution
Gup, B.:
Bank Mergers: Current Issues and Perspectives
Kormendi, R., Bernard, V., Pirrong, S., Snyder, E.:
Crises Resolution in the Thrift Industry
Hancock, D.:
A Theory of Production for the Financial Firm
England, C.:
Governing Banking's Future
Kaufman, G.:
Banking Structures in Major Countries
Anderson, S., and Born, J.:
Closed-End Investment Companies
INITIAL PUBLIC OFFERINGS:
FINDINGS AND THEORIES
Seth c. Anderson
University of North Florida
T. Randolph Beard
Auburn University
Jeffery A. Born
Northeastern University
~.
"
Springer Science+Business Media, LLC
Library of Congress Cataloging-in-Publication Data
Anderson, Seth C.
Initial public offerings : findings and theories 1 Seth C.
Anderson, T. Randolph Beard, Jeffery A. Born.
p. cm. -- (Innovations in financial markets and institutions)
Includes bibliographical references and index.
ISBN 978-1-4613-5969-2 ISBN 978-1-4615-2295-9 (eBook)
DOI 10.1007/978-1-4615-2295-9
1. Going public (Securities) I. Beard, T. Randolph (Thomas
Randolph) 11. Born, Jeffery A. III. Tide. IV. Series.
HG4028.S7A53 1995
658. 15'224--dc20 95-37158
CIP
Copyright (!l) 1995 by Springer Science+Business Media New York
Originally published by Kluwer Academic Publishers in 1995
Softcover reprint of the hardcover 1s t edition 1995
All rights reserved. No part of this publication may be reproduced, stored in
a retrieval system or transmitted in any form or by any means, mechanical,
photo-copying, recording, or otherwise, without the prior written permission of
the publisher, Springer Science+Business Media, LLC.
Printed on acid{ree paper.
DEDICATION
This book is dedicated to our wives: Linda Anderson, Leslie
Beard, and Mary Ann Born.
Contents
Preface IX
Writings Summarized Xl
l. Initial Public Offerings: 1
An Introduction
2. History, Regulation, and Process 5
3. Empirical Findings 13
Domestic Common Stock
Foreign Common Stock
Bonds
Investment Company/Other Offerings
Summary
4. Theoretical Models of IPOs 27
Adverse Selection
Principal-Agent
Signalling
Heterodox Explanations
Other IPO Models
5. Testing Theories of Underpricing 69
6. Conclusion 83
Bibliography 87
Endnotes 99
Index 107
PREFACE
Initial public offerings (IPOs) playa crucial role in
allocating resources in market economies. Because of the
enormous importance of IPOs, understanding how IPOs work is
fundamental in understanding 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. This book is 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.
In the book, we first give a brief overview of IPOs in the
United States. This overview is followed by a concise treatment
of IPOs' history, regulation, and process. Next we present
summaries of academic articles' empirical findings on IPO
returns. Chapter 4 presents theoretical models of IPOs and is
followed by Chapter 5, which summarizes the findings of various
tests of theories of underpricing. Chapter 6 is a brief conclusion.
We wish to express appreciation to Professors Robert
Eisenbeis and Richard McEnally of the University of North
Carolina, who made many helpful comments and who supported
our writing a monograph in this area. We also thank Zachery
Rolnik and the other editors of Kluwer for their helpful
comments. The completion of the book was greatly facilitated
by both Jeanne Davis and Cathy Kruse, who word-processed the
manuscript and by Linda Anderson, who edited it. We thank our
patient wives and families for their moral support.
IPO WORKS SUMMARIZED
IN THIS MONOGRAPH
AUTHOR TITLE PAGE
Affleck-Graves, "The Effect of the Trading 21
Hedge, Miller, System on the Underpricing
Reilly of Initial Public Offerings"
Aggarwal, Leal, "The Aftermarket Perfor- 22
Hernandez mance of Initial Public Of-
ferings in Latin America"
Aggarwal, "Evaluating the Costs of 20
Rivoli Raising Capital Through an
Initial Public Offering"
Aggarwal, "Fads in the Initial Public 20
Rivoli Offering Market?"
Allen, "Signaling by Underpricing 48,49,
Faulhaber in the IPO Market" 53,67,
76
Anderson, Born "The Selling and Seasoning 24
of Investment Company
Offerings"
Anderson, Born "Other-Country Funds: IPO, 24
Seasoning, and Post-Sea-
soning Return Behavior"
Xll
Anderson, Born, "An Analysis of Bond 24, 84
Beard Investment Company IPOs:
Past and Present"
Balvers, "Underpricing of New Is- 20
McDonald, sues and the Choice of
Miller Auditor as a Signal of In-
vestment Banker Reputa-
tion"
Baron "A Model of the Demand 32, 39,
for Investment Banking 43-45,
Advising and Distribution 58,70,
Services for New Issues" 75,76
Barry, "The Opening Price Perfor- 21
Jennings mance of Initial Public
Offerings of Common
Stock"
Bear, Curley "Unseasoned Equity Financ- 36,60,
ing" 71
Beatty, Ritter "Investment Banking, 30,36,
Reputation, and the 37,55,
Underpricing of Initial 59,65,
Public Offerings" 71-73,
78
Xlll
Benveniste, "How Investment Bankers 53-55,
Spindt Determine the Offer Price 64,65,
and Allocate New Issues" 69,80,
81
Block, Stanley "Financial Characteristics 19
and Price Movement
Patterns of Companies ... "
Booth, Smith "Capital Raising, Underwrit- 65
ing, and the Certification
Hypothesis"
Bower "Firm Value and the Choice 62,63
of Offering Method in Initial
Public Offering"
Buckland, "Price Discount on New 22
Herbert, Equity Issues in the UK and
Yeomans Their Relationship to Inves-
tor Subscription in the
Period 1965-1975"
Carter "Underwriter Reputation and 71,73
Repetitive Public Offerings"
Carter, "Initial Public Offerings and 30,36,
Manaster Underwriter Reputation" 37,66,
73
Chalk, Peavy "Initial Public Offerings:" 78
Daily Returns, Offering
Types and the Price Effect"
