The percent of firms paying cash dividends falls from 66.5 in 1978 to 20.8 in 1999. The decline is due in part to the changing characteristics of publicly traded firms. Fed by new lists, the population of publicly traded firms tilts increasingly toward small firms with low profitability and strong growth opportunities -- characteristics typical of firms that have never paid dividends. More interesting, we also show that controlling for characteristics, firms become less likely to pay dividends. This lower propensity to pay is at least as important as changing characteristics in the declining incidence of dividend payers. * Graduate School of Business, University of Chicago (Fama) and Sloan School of Management, MIT (French). We acknowledge the comments of John Graham, Douglas Hannah, Anil Kashyap, Tobias Moskowitz, G. William Schwert, Andrei Shleifer, Paul Zarowin, two anonymous (and especially helpful) referees, and seminar participants at Harvard University, the University of Chica...

This paper analyzes the determinants of initial public offerings (IPOs) in Italy. We compare the ex ante and the ex post characteristics of IPOs with those of a large sample of privately held companies. The likelihood of an IPO is positively related to the company's size and the industry's market-to-book ratio. Companies appear to go public not to finance future investments and growth, but rather to rebalance their accounts after a period of high investment and growth. IPOs are also followed by a reduction in the cost of credit and an increased turnover in control. These findings highlight some important differences between the role played by the equity market in Italy (and likely in other Continental European countries) and in the United States. This paper is part of the research project on "The decision to go public and the stock market as a source of capital," promoted by the Ente "Luigi Einaudi" per gli studi monetari bancari e finanziari. The suggestions we received from Espen E...

The share of equity issues in total new equity and debt issues is a strong predictor of U.S. stock market returns between 1928 and 1997. In particular, firms issue relatively more equity than debt just before periods of low market returns. The equity share in new issues has stable predictive power in both halves of the sample period and after controlling for other known predictors. We do not find support for efficient market explanations of the results. Instead, the fact that the equity share sometimes predicts significantly negative market returns suggests inefficiency and that firms time the market component of their returns when issuing securities.

Seasoned equity issuers can raise reported earnings by altering discretionary accounting accruals. We find that issuers who adjust discretionary current accruals to report higher net income prior to the o#ering have lower post-issue long-run abnormal stock returns and net income. Interestingly, the relation between discretionary current accruals and future returns (adjusted for firm size and book-to-market ratio) is stronger and more persistent for seasoned equity issuers than for non-issuers. The evidence is consistent with investors naively extrapolating pre-issue earnings without fully adjusting for the potential manipulation of reported earnings. # 1998 Elsevier Science S.A. All rights reserved.

Carolina at Chapel Hill for helpful comments and suggestions and Jay Ritter and Michel Vetsuypens for We examine data on analyst following for a sample of initial public offerings completed over the 1975-1987 period to see how they relate to three well-documented IPO anomalies. We find that higher underpricing leads to increased analyst following. Analysts are overoptimistic about the earnings potential of recent IPOs and about their long term growth prospects. More firms complete IPOs when analysts are particularly optimistic about the growth prospects of recent IPOs. In the long run, IPOs have better stock price performance when analysts ascribe low growth potential to these firms than when they ascribe high growth potential. These results suggest that the anomalies documented in the IPO market may, at least partially, be driven by overoptimism. 1 1.

We review the theory and evidence on IPO activity: why firms go public, why they reward first-day investors with considerable underpricing, and how IPOs perform in the long run. Our perspective is threefold: First, we believe that many IPO phenomena are not stationary. Second, we believe research into share allocation issues is the most promising area of research in IPOs at the moment. Third, we argue that asymmetric information is not the primary driver of many IPO phenomena.

The class of firms that obtain public equity financing expands dramatically in the 1980s and 1990s. After 1979, the rate at which new firms are listed on major U.S. stock exchanges jumps from about 160 to near 550 per year, and the characteristics of new lists change. The cross-section of new list profitability becomes progressively more left skewed, and growth becomes more right skewed. The result is a sharp decline in new list survival rates. We suggest that the changes in the characteristics of new lists are due to a decline in the cost of equity capital that allows weaker firms and firms with more distant expected payoffs to become viable candidates for public equity financing.

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Research in behavioral corporate finance takes two distinct approaches. The first emphasizes that investors are less than fully rational. It views managerial financing and investment decisions as rational responses to securities market mispricing. The second approach emphasizes that managers are less than fully rational. It studies the effect of nonstandard preferences and judgmental biases on managerial decisions. This survey reviews the theory, empirical challenges, and current evidence pertaining to each approach. Overall, the behavioral approaches help to explain a number of important financing and investment patterns. The survey closes with a list of open questions.

After 1979, the rate at which new firms are listed on the major U.S. stock exchanges increases sharply, asset growth rates of new lists are high, but their profitability declines and remains low for at least five years after listing. New lists also become less likely to survive, primarily because of delisting for poor performance. Overall, market prices reflect the volatile dynamics of new list fundamentals. Thus, for the full 1926 to 2000 period and the 1973 to 2000 Nasdaq period, value-weight and equalweight new list returns are close to benchmark returns. For the high action 1980 to 2000 period, equalweight new list returns are low, but value-weight returns are again close to benchmark returns. * Graduate School of Business, University of Chicago (Fama), and Tuck School of Business, Dartmouth College (French). We gratefully acknowledge the helpful comments of Frank Easterbrook, Kenneth Lehn, Jonathan Macey, Richard Roll, Hans Stoll, and seminar participants at UCLA. The market...