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on Corporate Finance |
| By: | Tim Jenkinson; Howard Jones |
| Abstract: | Despite the central importance of investors to all IPO theories, relatively little is known about their role in practice. In this paper we survey institutional investors about how they assess IPOs, what information they provide to the investment banking syndicate, and the factors they believe influence allocations. Although the theoretical IPO literature has tended to focus on information revelation, the survey raises doubts as to the extent of incremental information production and whether bookrunners are, in practice, able to infer investors’ valuations from their bids. We find that investor characteristics, in particular broking relationships with the bookrunner, are perceived to be the most important factors influencing allocations, which supports the view that IPO allocations are part of implicit quid pro quo deals with investment banks. |
| JEL: | G23 G24 |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:sbs:wpsefe:2006fe13&r=cfn |
| By: | Tim Jenkinson; Howard Jones |
| Abstract: | Stabilization is the bidding for and purchase of securities by an underwriter immediately after an offering for the purpose of preventing or retarding a fall in price. Stabilization is price manipulation, but regulators allow it within strict limits – notably that stabilization may not occur above the offer price. For legislators and market authorities, a false market is a price worth paying for an orderly market. This paper compares the rational for regulators’ allowing IPO stabilization with its effects. It finds that stabilization does have the intended effects, but that underwriters also seem to have other motives to stabilize, including favouring certain aftermarket sellers and enhancing their own reputation and profits. A puzzling aspect of stabilization is why underwriters create ‘naked short’ positions which are loss-making to cover when, as is usual, the aftermarket price rises to a premium. We set up a model to show that the lead underwriter may profit from a naked short at the expense of the rest of the syndicate given the way commissions are apportioned between them. We argue that a naked short mitigates the misalignment of interests which stabilization causes between issuer and lead underwriter, although it does so at the expense of the non-lead underwriters. |
| Keywords: | IPO, stabilization, syndicates |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:sbs:wpsefe:2006fe14&r=cfn |
| By: | Giovanni Cespa (University of Salerno, CSEF and CEPR); Giacinta Cestone (University of Salerno, CSEF and CEPR) |
| Abstract: | When stakeholder protection is left to the voluntary initiative of managers, relations with social activists may become an effective entrenchment strategy for inefficient CEOs. We thus argue that managerial turnover and firm value are increased when explicit stakeholder protection is introduced so as to deprive incumbent CEOs of activists’ support. This finding provides a rationale for the emergence of specialized institutions (social auditors and ethic indexes) that help firms commit to stakeholder protection even in case of managerial replacement. Our theory also explains a recent trend whereby social activist organizations and institutional shareholders are showing a growing support for each others’ agenda |
| Keywords: | Corporate Governance, Corporate Social Responsibility, Managerial Entrenchment, Social Activism, Stakeholders |
| JEL: | G34 G38 |
| Date: | 2007–01–01 |
| URL: | http://d.repec.org/n?u=RePEc:sef:csefwp:173&r=cfn |
| By: | Karlan, Dean S.; Zinman, Jonathan |
| Abstract: | Policymakers often prescribe that microfinance institutions increase interest rates to eliminate reliance on subsidies. This strategy makes sense if the poor are rate insensitive: then microlenders increase profitability (or achieve sustainability) without reducing the poor’s access to credit. We test the assumption of price inelastic demand using randomized trials conducted by a consumer lender in South Africa. The demand curves are downward-sloping, and steep for price increases relative to the lender’s standard rates. We also find that loan size is far more responsive to changes in loan maturity than to changes in interest rates, which is consistent with binding liquidity constraints. |
| Keywords: | microfinance |
| JEL: | G2 |
| Date: | 2007–01 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:6071&r=cfn |