Private firm pricing and propensity to go public: evidence from mutual funds holdings

2016 ◽  
Vol 17 (3) ◽  
pp. 328-346
Author(s):  
Mariluz Alverio ◽  
Javier Rodríguez
Keyword(s):  
Mutual Funds ◽  
Initial Public Offering ◽  
Boards Of Directors ◽  
Private Firm ◽  
Private Firms ◽  
Content Type ◽  
Academic Literature ◽  
Privately Held Firms ◽  
Public Offering ◽  
Privately Held

Purpose The purpose of this study is to focus on mutual funds’ valuations of their US private firm holdings. According to extant academic literature, mutual funds’ boards of directors should assign prices to their private firm stocks based on their own determination of fair value. Design/methodology/approach This study investigates fluctuations in valuations of mutual funds holdings of private firms, and whether or not mutual funds managers are able to pick privately held firms that eventually undergo an initial public offer. Findings The study shows that private firm common stocks’ prices fluctuate much more than preferred stocks’; however, as expected, preferred stock is the most selected security type. This study also investigates these firms’ propensity to undergo an initial public offering (IPO). Results show that mutual funds allocated most of their capital to US private sector firms that underwent an initial public offering. Logit model results reveal that fund managers are able to pick privately held firms that will go public. Research limitations/implications Due to data limitations, the authors’ analysis does not control for venture capital ownership; an issue the authors plan to address in the future. Originality/value Though, research in this area may exist, the authors have not found academic literature related to holdings of private firms by mutual funds, pricing by funds’ boards of directors or the motives for such investments.

scholarly journals Corporate governance and IPO underpricing: evidence from the italian market

2021 ◽  
Author(s):  
Emanuele Teti ◽  
Ilaria Montefusco
Keyword(s):  
Corporate Governance ◽  
Initial Public Offering ◽  
Boards Of Directors ◽  
Stock Option ◽  
Board Members ◽  
Ipo Underpricing ◽  
Italian Market ◽  
Public Offering ◽  
The Impact ◽  
Positive Effect

AbstractThis paper aims to analyse the impact of firms’ corporate governance characteristics on the degree of first-day returns (i.e., underpricing) in the Italian initial public offering (IPO) market. In particular, this work investigates the impacts of the characteristics of boards of directors (BoDs) and ownership structure on the underpricing of newly offered shares. By studying a sample of 128 Italian IPOs between 2000 and 2016, it is concluded that corporate governance characteristics affect the degree of first-day returns following a company’s IPO. More specifically, the size of the BoD negatively affects underpricing, while the ownership of institutional investors and board members has a positive effect on the degree of underpricing. Conversely, no significant evidence is found with regard to board independence, the number of female directors in the boardroom, the implementation of stock option plans and ownership concentration.

Groupon: let's make a deal?

2015 ◽  
Vol 11 (1) ◽  
pp. 26-38
Author(s):  
Susan White
Keyword(s):  
Social Media ◽  
Initial Public Offering ◽  
Content Type ◽  
Media Companies ◽  
Secondary Sources ◽  
Long Run ◽  
Public Offering ◽  
Media Firms ◽  
Term Performance

Synopsis Groupon, an online coupon company, was one of many companies that considered an initial public offering (IPO) during what might be a second technology/internet/social media IPO boom in 2011. Some companies chose to postpone their IPOs, while others took advantage of the media attention focussed on technology companies, and in particular, social media firms. Should investors hop on the tech IPO bandwagon, or hold off to better evaluate the long-term prospects of tech companies, and in particular social media companies? Would the valuation of Groupon justify an investment in IPO shares? Research methodology The case was researched from secondary sources, using Groupon's IPO filing information, news articles about the IPO and industry research sources, such as IBIS World. Relevant courses and levels This case is appropriate for an advanced undergraduate or MBA corporate finance or investment elective. Most introductory finance classes do not have the time to cover later chapters in a finance textbook, where information about IPOs is generally found. It could also be used at the end of a core finance course, where the instructor wanted to introduce this topic through a case study of a hard-to-value internet-based company to illustrate the difficulties in setting IPO prices. The case could also be used in an equity analysis class, an entrepreneurial finance class or an investment class, to spur discussion about valuing an internet company and choosing appropriate investments for pension fund investing. This case could also be used in a strategy class, focussing on the five forces question, and eliminating the valuation question. Theoretical basis There is a great deal of literature about IPOs and their long-term performance. An excellent source is Jay R. Ritter's research, http://bear.warrington.ufl.edu/ritter, which has a longer time period and more data than could be contained in this case. IPO puzzles include persistent undervaluing of IPOs; in other words, the offer price is lower than, and sometimes substantially lower than, the first day close price. A second issue is the generally poorer long-run performance of companies after their IPO when compared to similar firms that did not do an IPO.

Does prospectus information matter in IPO pricing?

2018 ◽  
Vol 9 (4) ◽  
pp. 514-530 ◽  
Author(s):  
Rasidah Mohd-Rashid ◽  
Mansur Masih ◽  
Ruzita Abdul-Rahim ◽  
Norliza Che-Yahya
Keyword(s):  
Initial Public Offering ◽  
Institutional Investors ◽  
Ordinary Least Squares ◽  
Quadratic Model ◽  
Cross Sectional ◽  
Content Type ◽  
Ipo Pricing ◽  
The Government ◽  
Public Offering ◽  
Lower Uncertainty

Purpose The purpose of this study is to identify selected information from the prospectus that might signal the initial public offering (IPO) offer price. Design/methodology/approach This study uses cross-sectional data for a 14-year period from 2000 to 2014 in examining hypotheses relating to Shariah-compliant status, institutional investors, underwriter ranking and shareholder retention, with respect to their associations with the offer price of the IPOs. Further, this study uses ordinary least squares (OLS) for all models, including the models for both subsamples of Shariah- and non-Shariah-compliant IPOs. As for robustness, this study incorporates the quantile regression and quadratic model. Findings The results tend to provide support for the argument that firms with Shariah-compliant status reflect lower uncertainty and project better signalling of quality due to greater scrutiny by the government and thus are able to offer IPOs at higher prices. Similarly, firms with a higher proportion of shareholder retention indicate lower risks as insiders forego their options to diversify their portfolio, and hence could price their IPOs higher. Finally, the involvement of institutional investors and higher underwriter ranking could be used by firms to disregard information asymmetry, and therefore, the issuer might have to discount the IPO offer price. Research limitations/implications This study focuses solely on information in the prospectus that should not be disregarded by the investors in valuing the appropriateness of the IPO offer price. This study contributes in terms of providing a better understanding of the determinant factors of the IPO offer price of the firms which are Shariah-compliant. Originality/value This paper provides evidence for the determinants of the IPO offer price in a fixed pricing mechanism for both Shariah-and non-Shariah-compliant IPOs.

Impact of the liability of foreignness, domicile of incorporation and an institutional change on reverse merger firms’ capital-raising performance

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Ho Wook Shin ◽  
Seung-Hyun (Sean) Lee ◽  
Min-Jung Lee
Keyword(s):  
Institutional Change ◽  
International Business ◽  
Initial Public Offering ◽  
Design Methodology ◽  
Liability Of Foreignness ◽  
Entry Barrier ◽  
Content Type ◽  
Reverse Merger ◽  
The Usa ◽  
Public Offering

Purpose The purpose of this study is to examine how the liability of foreignness (LOF), choice of incorporation and an institutional change independently and jointly affect a reverse merger (RM) firm’s capital-raising performance. Design/methodology/approach The study draws on the data of shell reverse merger transactions in the USA from 2007 to 2016. Findings This paper finds that LOF and the choice of incorporation as a signal have a significant effect on RM firms’ capital-raising performance. In addition, this study finds that the effectiveness of the signaling can be affected by LOF. Finally, this paper finds that an institutional change that lowers the entry barrier to the initial public offering (which is a superior alternate to an RM) affects the impacts of LOF and signaling on RM firms’ capital-raising performance. Originality/value The study contributes to the international business literature by examining the RM (which has been an under-researched topic in the literature) by drawing on the LOF framework. The study finds that LOF and the choice of state for incorporation affect RM firms’ capital-raising performance; moreover, these relationships are affected by an institutional change.

Private firm performance: do women directors matter?

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Mahnoor Sattar ◽  
Pallab Kumar Biswas ◽  
Helen Roberts
Keyword(s):  
Firm Performance ◽  
Performance Measures ◽  
Small Firm ◽  
Gender Diversity ◽  
Private Firm ◽  
Private Firms ◽  
Women Directors ◽  
Content Type ◽  
Firm Profitability ◽  
Board Gender Diversity

Purpose This paper aims to examine the relationship between board gender diversity and private firm performance. Design/methodology/approach The authors test the association between board gender diversity and private firm performance by estimating pooled multivariate regressions using an unbalanced panel data set of 115,253 firm-year observations. Findings The authors find that younger, less busy and local women directors enhance private firm performance. Firms with 40% or more women directors report triple the economic benefits compared to boards with at least 20% women directors. Considering firm size, women directors significantly increase small firm profitability, and the effect is more pronounced for high-risk firms. Greater board gender diversity enhances small firm performance as the monitoring role of women directors benefits the firm even in the presence of busy men directors. Consistent with the agency theory framework, the authors find that women directors improve small firm profitability in the presence of agency costs. Research limitations/implications Due to the lack of availability of data about private firms, many factors are not directly observable. The analysis uses accounting-based performance measures that may be subject to managerial discretion. Nevertheless, the authors report highly significant results using cash-based performance measures that substantiate the overall findings. Practical implications The results of the present study point to the need for private firms to increase board gender diversity and consider women director busyness, age, nationality and firm size when making board director appointments. Originality/value This study adds to the scarce existent literature investigating private firms. The results contribute to the understanding of gender-diverse boards as well as the attributes of women directors that enhance private firm performance.

Relationship between prestige signals and over-subscription ratio

2019 ◽  
Vol 15 (4) ◽  
pp. 564-579 ◽  
Author(s):  
Ali Albada ◽  
Othman Yong ◽  
Soo-Wah Low
Keyword(s):  
Initial Public Offering ◽  
Design Methodology ◽  
Executive Board ◽  
Cross Sectional ◽  
Content Type ◽  
Underwriter Reputation ◽  
Reputational Capital ◽  
Public Offering ◽  
The Relationship ◽  
Institutional Participation

PurposeThe purpose of this paper is to examine whether initial public offering (IPO) over-subscription is a function of firm’s prestige signals conveyed by third parties with reputational capital such as underwriter, auditor and independent non-executive board member.Design/methodology/approachThe relationship between prestige signals and over-subscription ratio (OSR) of IPOs is analysed using a cross-sectional regression based on a sample of 393 IPOs issued between January 2000 and December 2015.FindingsThe results indicate that IPOs underwritten by reputable underwriters have lower OSR than those underwritten by non-reputable underwriters. While issuer engages reputable underwriter to certify firm quality to reduce information asymmetry, the action brings with it lower initial returns for its IPO. Investors interpret the signal conveyed by issuer’s choice of underwriter from under-pricing perspective and respond accordingly by reducing IPO demand. This implies that investors regard under-pricing as a more valuable signal than firm quality signal associated with underwriter reputation. The findings also indicate that over-subscription increases in IPOs that have above average initial returns and higher institutional participation. Issuing firms that go public in a period of high IPO volume are associated with low OSR.Originality/valueThis is the first paper to examine the relationship between the prestige signals and OSR of IPOs in the Malaysian context.

ICOs, the next generation of IPOs

2019 ◽  
Vol 46 (6) ◽  
pp. 761-783 ◽  
Author(s):  
Mohammad Hashemi Joo ◽  
Yuka Nishikawa ◽  
Krishnan Dandapani
Keyword(s):  
Initial Public Offering ◽  
Future Development ◽  
Design Methodology ◽  
Detailed Comparison ◽  
Content Type ◽  
Blockchain Technology ◽  
Capital Funding ◽  
The Future ◽  
Public Offering ◽  
Further Development

Purpose The purpose of this paper is to recognize the benefits of the initial coin offering (ICO) as a way of raising funds and to present a detailed comparison between the ICO and the initial public offering to realize the future possibilities that this new funding method holds. Design/methodology/approach It is an exhaustive review of the ICO, the mechanism of crowdfunding, the blockchain technology behind it, benefits and current shortcomings of the ICO, and the potential future development of the ICO as a convenient and efficient way of raising capital. Findings ICOs have brought billions of dollars of funding to startups and projects worldwide in less than two years. Concurrently, many successful ICOs yielded extremely high returns to investors and believers of this new way of funding businesses. Research limitations/implications While the ICO is a revolutionary vehicle for business funding, it has raised concerns among users as well as potential investors about its risk and lack of regulation. The future of this innovative funding method highly depends on further development and placement of appropriate regulatory supervision, better understanding of risk and benefits and attaining the confidence of users. Originality/value This is a review of the advantages and drawbacks of the ICO. If the current fraud, market and cybersecurity risks can be mitigated and standardized regulations are developed, the ICO has a future to become an established way of capital funding or even replace the existing options, regardless of the size and age of companies.

scholarly journals Institutional characteristics, signaling variables and IPO initial returns

2019 ◽  
Vol 3 (1) ◽  
pp. 29-49 ◽  
Author(s):  
Sheela Devi D. Sundarasen
Keyword(s):  
Initial Public Offering ◽  
Firm Value ◽  
Civil Law ◽  
Oecd Countries ◽  
Legal Framework ◽  
Least Square ◽  
Institutional Characteristics ◽  
Cross Sectional ◽  
Content Type ◽  
Public Offering

Purpose This paper aims to provide empirical evidence on the extent of alteration institutional characteristics, i.e. legal origin and corruption levels, may have on the signaling effects of auditors’ reputation, underwriters’ reputation and ownership retention on initial public offering (IPO) initial returns in OECD countries. Design/methodology/approach Cross-sectional data composed of 6,182 IPOs from 30 OECD countries are used for 2003-2012. Ordinary least square with multiple linear regressions is used to test the hypotheses. Findings The findings indicate that the legal framework and corruption level of a country alters the signaling effects of underwriters’ reputation, auditors’ reputation and ownership retention in an IPO environment. These three variables mitigate information asymmetry, signal firm value to potential investors and ultimately decrease IPO initial returns. This relationship is more significant in the civil law countries. Corruption levels negatively moderate the relationship in the common law and Scandinavian civil law countries but have no significance in the German and French civil law countries, indicating the importance of the signaling variables in these two civil law countries. Originality/value This study examines the extent of the alterations that the legal framework and the corruption levels cause to the signaling relationship between auditors’ reputation, underwriters’ reputation and ownership retention on IPO initial returns in selected OECD countries.

The reshaping of Chinese consumer values in the social media era

2015 ◽  
Vol 18 (4) ◽  
pp. 409-426 ◽  
Author(s):  
Jingyi Duan ◽  
Nikhilesh Dholakia
Keyword(s):  
Social Media ◽  
Initial Public Offering ◽  
Critical Role ◽  
Chinese Society ◽  
Content Type ◽  
Media Companies ◽  
Consumer Values ◽  
Chinese Consumer ◽  
Public Offering ◽  
Chinese Social Media

Purpose – The purpose of this paper is to investigate how, in China, postings on social media site Weibo reflect as well as accelerate the reshaping of traditional values. As Chinese social media extend their reach outside China, the displays of visible desire, hedonism and materialism could influence global consumption ethos. Design/methodology/approach – Using interpretive content analysis, over 250 Weibo postings of 8 selected Weibo users, from the network of one of the authors, were identified, coded and interpreted. The users were selected based on their frequency, variety and expressiveness of postings. Findings – Weibo is playing a critical role in transforming Chinese consumer values. Via Weibo, personal consumption experiences are available for public gaze. Consequently, desire for powerfully signified objects and experiences is more visible; “enjoy now” is turning out to be an appreciated life attitude, and materialism and hedonism are growing irresistibly. As a result, the traditional Chinese consumer values – suppressing desire, delaying gratification and thriftiness – are losing ground in Chinese society. Also, as Weibo makes the influence of the elite as well as electronic word-of-mouth very powerful, the values of the elite and grassroots groups are actually converging instead of being separated by substantial chasms that have existed historically. Practical implications – Sina Weibo had a US initial public offering (IPO) of its stock in April, 2014, and many other China-based Internet firms were getting set for US IPOs. This paper provides unique insights for Chinese social media companies’ potential global impact. Future social media contexts would be shaped by collision as well as convergence of Asia-centric and USA-centric platforms. This paper lays the groundwork for studying such interactions. Originality/value – In-depth interpretations of Weibo postings contribute to our understanding of how social media impact Chinese society now and would potentially affect global societies later. This is a pioneering study on the massive influences of social media on the macro-level consumer behavior.

The Relationship between Boards of Directors and Initial Public Offerings in the Biotechnology Industry

1998 ◽  
Vol 22 (3) ◽  
pp. 5-29 ◽  
Author(s):  
Todd A. Finkle
Keyword(s):  
Initial Public Offerings ◽  
Initial Public Offering ◽  
Boards Of Directors ◽  
Biotechnology Industry ◽  
Public Offerings ◽  
Biotechnology Firms ◽  
The Board Of Directors ◽  
And Performance ◽  
Public Offering ◽  
Performance Results

Utilizing the entire population of public biotechnology firms from 1980-1994, three models were tested to determine If a relationship exists between the size and composition of the board of directors and performance. Results indicate significant positive relationships between director expertise and the size of a firm's initial public offering. Going public during hot markets and larger firms were also related to larger Initial public offerings. These findings will benefit practitioners in the formation of boards within the biotechnology Industry. Managers of firms within the biotechnology industry who are contemplating a public offering will be able to proactively address the composition of their boards.

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