Master Thesis Topic

* The market is extremely unpredictable and an unsuccessful IPO can result in a great loss of time as well as money for the company

Baker, M. & Wurgler, J. 2002, ‘Market Timing and Capital Structure,’ Journal of Finance, vol. 57, pp 1-32

public offering (IPO). Fundraising recovered from 2002’s nadir of $12 billion, but comparisons to the

It could be a new, young or an old company which decides to be listed on exchange and hence goes to public. IPOs rank top among the largest sources of capital for the firms in India to launch their business ventures or for business expansion. Underpricing is the pricing of the IPO at less than the fair value of the issue. The degree of underpricing differs from country to country and issue to issue in the same country. The underpricing of the IPO is a loss of capital to the issuing company but gain for the investors as it yields them positive abnormal initial return. All the relevant literatures conclude that average IPOs are undervalued at the offer price as the first day market price is the indication of intrinsic value or fair value of the stock. IPOs generate positive abnormal listing day return (i.e. underpriced) followed by negative abnormal return for a reasonably long period. The over pricing of IPOs refers to the price when issue price is lower than the listing day price. In this case the listing companies lose their money due to investor’s low interest in getting more shares. Jindal and Chandler (2015) described in their study that the IPOs are often underpriced or overpriced due to the Investor’s behavioral contours while making investment decisions like whether to invest or not in IPO shares for making

Managers may believe the company is currently over-valued, as they have previously been delaying the asset write-off, and artificially inflating earnings in the meantime. However, there may be endogeneity problems with such a conclusion, as the observed patterns of insider information may be due to a firm’s concerted share buyback strategy rather than earnings management.

This paper reviews the principal theories that have been proposed to explain IPO underpricing and discusses the empirical evidence. Theories of underpricing can be grouped under four broad headings: asymmetric information, institutional, control, and behavioral. The key parties to an IPO transaction are the issuing firm, the bank under- writing and marketing the deal, and the new investors.

This organizational pricing tactic gets the share prices opposite from the great demands of the community investors. The political incentive also plays a role in determining the underpricing of the IPO shares as underpricing allows for strong government-oriented framework in China. Through the high returns, these Politian’s entice more potential new issuers and political media attentions. Getting a wide reporting in the top political news televisions and other media outlets are vital for these politicians as such prominences may underwrite to their political position. Marcel argues that powerful partisan media in China is more likely to pull attention from the government officials that facilitate the advancement of these politicians’ career. The high demands of the IPO shares attribute to a huge quantity of national investors in China. As seen in the figures presented above, there was a growing number of individual investors involved in trading A-shares in the last decade. According to Diebold and Yilmaz, there have been over 200 million separate domestic stockholders in Chinese financial market by the end of 2012 (p.188). The great demands for emerging firms are also due to absent alternate investment choice in China, therefore the National Bureau of Statistics of China, the income per capital of the Chinese nationals increased on average by 14.5% per year on from 20020to 2012 (Diebold, Yilmaz, p.190). In the meantime, the

In practice, Dodd and Officer found evidence that no significant abnormal returns (return of a security over its average or expected return) occurred on the day take over rumour was published, although some abnormal returns typically occurred prior to the publicity of rumour. This prior abnormal return must be because of insider trading, as the unpublished information they possess allow them to predict the trend up to takeover bid, thus, at the date of take over published, market already reached equilibrium price.

It is true that IPO raises huge capital for the issuing company. But in order to launch an Initial Public Offering (IPO), it is also necessary to make certain investments. Setting up an IPO does not always lead to an improvement in the economic performance of the company. A continuing expenditure has to be incurred after the setting up of an IPO by the parent company. A lot of expenses have to be incurred in the form of legal fees, printing costs and accounting fees, which are connected to the registering of an IPO. Such expenses might cost hundreds of US dollars. Apart from such enormous costs, there are other factors as well that should be taken into consideration by the company while introducing an IPO.

Thanks to the advancement of the worldwide financial market, especially that of stock exchanges, Chinese leading firms have the chance to propose IPOs (initial public offerings), and acquire a significant amount of domestic and foreign investment for future development. Moreover, companies can further expand their capital in various ways, including initiating secondary market offerings and introducing private funding. In this sense, not only does an IPO generate capital for the company, but it also enables the company to acquire prolific capital, as long as the company operates profitably, and is able to attract investors.

Insider trading relates the investment behavior of corporate insiders with their own stock. Insider trading topic not only attracts finance literature (see, e.g., Lorie and Niederhoffer 1968, Jaffe 1974, Seyhun 1986, 1998, Rozeff and Zaman 1988, Lin and Howe 1990, and Lakonishok and Lee 2001), but also attracts law and economics literature (see, e.g., Manna 1966, Georgeakopoulos 1993, and Carlton and Fischel 1983).

Article – 2 – Draft 1 Can the Dragon be tamed by ethics? : Alibaba listing on NYSE Alibaba also known as the behemoth of Chinese internet and for some the Chinese Amazon has been in news these days for all good reasons. The e-commerce giant has introduced its IPO in NYSE with an offer price of $68.00 per share. The prices increased initially by 30% on the first day of trading taking the market value of the company to $230 billion. Based on the offering price the stocks of Alibaba sold at about 25 times higher than the estimated 2015 underwriter projection. After the first day’s raise the company will have to put its focus on the year on year growth. To meet the expectation of investors and analysts the company need to increase revenue by

Initial Public Offerings are when any type of security is sold to the public for the first time within a company’s history. The main reason for this is to hope that a liquid market will grow within this security, where people are trading shares on a daily basis. The reason that I have decided to do research on IPO’s is because it sounds very simple, yet there are many things that must be done in order to reach a point to offer an IPO and there are also many ups and downs for companies to weigh to see if it is worth taking their security to the general public. Throughout this paper I will introduce to you why company’s want to issue IPO’s, how they do it, and how they try to create the initial price per share. Along with those key ideas, I will talk about why most IPO’s are underpriced when they go to market, price changes once on the market, and lockup agreements. Finally, I am going to give a few examples of recent IPO’s such as Facebook and Sportsman’s Warehouse, and other IPO “fallouts.”

The paper relates to three sets of literature: the capital structure, the location effect, and the peer effect. In the classical capital structure context, Fischer, Heinkel, and Zech-ner (1989) and Leland (1994; 1998), Hovakimian, Opler, and Titman (2001) show that firms periodically readjusts capital structures toward a target ratio. Lemmon, Roberts, Zender (2008) show that the majority of changes in leverage ratio are caused “by an unobserved time-invariant effect that generates surprisingly stable capital structures.” Lemmon et al. (2008) show that this factor is present before the IPO. They conclude, “variation in capital structures is primarily determined by factors that remain stable for long periods of time.”

Based on Talmor&Vasvari (2012), in spite of the comparatively small number of vehicles, the improvement is striking since some of the largest and most prominent private equity vehicles, such as KRR and Blackstone, have preferred to go public. From an academic angle, the surfacing of listed private equity vehicles drastically increases the opportunities for scrutinizing an industry that is famous for being notoriously private.