When and whom should retailers offer price reductions in times of crisis?

PurposeWith a decrease in consumer spending during the coronavirus disease 2019 (COVID-19) pandemic, many retailers are offering price reductions to stimulate demand. However, little is known about how consumers perceive such price reductions executed during turbulent times. The authors examine whether the timing of price reductions and individual differences impact consumers' evaluations of the retailers offering such reductions.Design/methodology/approachUsing a longitudinal design, the authors inquire into four retailers' motives that consumers may infer from a price decrease at two different times during the COVID-19 crisis.FindingsThe authors find that the timing of price reductions plays a key role in shaping consumers' inference of retailers' motives. The authors also uncover individual characteristics that affect consumers' inferences.Originality/valueThis research advances the literature by demonstrating the critical role of timing and individual characteristics in consumers' perceptions of price reductions during times of crisis. The authors findings also provide retailers with actionable insights for their pricing strategies. The findings may be generalizable to other types of crises that may arise in the future.

Asymmetric information in IPO underpricing — literature review

Market anomalies after initial public offerings are a subject of extensive scientific research. One of such anomalies is underpricing, which refers to an increase of stock price in relation to the offering price shortly after stock issue. The occurrence of underpricing has been verified in many markets; however, the reasons for this phenomenon have not been yet conclusively established. The existence of information asymmetry in the capital market is one of the most popular assumptions applied in the studies in an attempt to explain the reasons why issuers discount the price of their offers. The purpose of this paper is to present the explanatory underpricing theories which are based on the asymmetry of information present between market participants, and to summarize the explanatory variables of underpricing that stem from the theory.

THE EFFECT OF FINANCIAL AND NON-FINANCIAL VARIABLES ON UNDERPRICING

After the shares were introduced to the public by the underpricing company (IPO), the problem lies in the closing price on the first day which tends to be higher than the initial offering price. Various factors can influence the occurrence of underpricing, both external and internal, that occurs in Islamic stocks. This study examines more about the influence of financial and non-financial variables on underpricing shares, especially in Islamic stocks. The population used includes, among others, listed companies on the IDX with a sample of issuers that went public from 2015 to 2019. Data analysis in this study used multiple regression. The results of the study prove that block holders in a company have an effect on the level of underpricing. Debt to Equity Ratio (DER) have an effect on the underpricing variable. Return on Asset (ROA) harms the underpricing variable. There is an effect of the current ratio value on underpricing. Firm size has an effect on underpricing. Company age (firm age) has an effect on the underpricing variable. JEL: D53; E44; G10 <p> </p><p><strong> Article visualizations:</strong></p><p><img src="/-counters-/edu_01/0727/a.php" alt="Hit counter" /></p>

Underpricing of initial public offerings in experimental asset markets

The underpricing of initial public offerings (IPO) is a well-documented fact of empirical equity market research. Theories explain this underpricing with market imperfections. We study three empirically relevant IPO mechanisms under almost perfect market conditions in the laboratory: a stylized book building approach, a closed book auction, and an open book auction. We report underpricing in each of these IPO mechanisms. Uncertainty about the aftermarket behavior may partly explain IPO excess returns but underpricing persists even in the repeated setting where uncertainty is negligible and despite the equilibrium adjustment dynamics, that we observe in the data. The data reveal a market-wide impact of investors’ reluctance to sell in the aftermarket at a price below the offering price. We conclude that a behavioural bias similar to the disposition effect fosters IPO underpricing in our setting.

Price-Matching Guarantees as a Direct Signal of Low Prices

If consumers believe that stores offering price-matching guarantees (PMGs) charge low prices, high-search-cost consumers will purchase from PMG stores. This leads PMG stores’ demand to be less price sensitive, which drives these stores to charge higher prices. The belief that PMG stores charge low prices paradoxically leads them to charge high prices. For this reason, the literature finds that PMGs can only signal low prices when firm heterogeneity is sufficiently large. Because PMGs are offered by retailers that purchase the same product from the same producer, large firm heterogeneity may be a strong assumption. This article proposes a theory that explains how homogeneous firms may signal their low prices through PMGs: consumers perceive PMG stores to have lower prices not because they expect them to have low marginal costs or service quality, but simply because they offer a PMG.

Conflicting interests: Going public in deteriorating market conditions

The purpose of this paper is to analyze whether the conflicting interest between issuing firms and CEOs (venture capitalists) affect the going-public decision. Going public in deteriorating market conditions is costly for issuing firms in terms of low offering price and high probability of withdrawal. If agency costs exist, agents pursuing their own interests may bring firms public even in poor market conditions, which has been largely ignored in the previous literature. To examine our hypotheses, we collect 1246 Japanese firms going public from 2001 to 2016 and conduct logit regressions, propensity score matching (PSM) as well as a probit model with sample selection. Consistent with our conjecture, we find a positive relation between the going-public decision and secondary shares offered by CEOs. Additionally, we also find an inverse U-shaped relationship between CEOs’ retained ownership and the going-public decision, indicating that in addition to liquidity needs, private benefits of control is another potential source of conflicting interests. Furthermore, secondary shares offered by VCs are also positively associated with the going-public decision, suggesting that when VCs attempt to exit as rapidly as possible, they are more likely to bring firms public even in deteriorating markets. These findings suggest that conflicting interests among parties affect the timing and costs of IPOs.