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.

This paper addresses the agency problem between controlling shareholders and minority shareholders. This problem is common among public firms in many countries where the legal system does not effectively protect minority shareholders against oppression by controlling shareholders. We show that even without any explicit corporate governance mechanisms protecting minority shareholders, controlling shareholders can implicitly commit not to expropriate them. Stock prices of such companies are significantly higher and firms are more likely go public because of this reputation effect. Moreover, insiders divest shares gradually over time, at a rate that is negatively related to the degree of moral hazard. RECENT EMPIRICAL RESEARCH INDICATES THAT in many countries the relevant corporate finance issue is not the traditional agency problem between management and shareholders, but rather the agency problem between the controlling shareholders and the minority shareholders. This problem may arise in some countries for two reasons: ~1! the corporate governance structure of public

This paper examines the book building mechanism for marketing initial public offerings. We present a model where the underwriter selects a group of investors along with a pricing and allocation mechanism in a way that maximizes the information generated during the process of going public at a minimum cost. Unlike previous models, we take into account the moral hazard problem that is faced by investors when evaluation is costly. Our results suggest that for firms with the most to gain from accurate pricing, the number of investors participating in the offering is larger, and underpricing will be greater. When a firm's demand for accuracy is relatively low, the expected amount of underpricing exactly offsets the investors' costs of acquiring information. However, when the demand for accuracy is high, the expected amount of underpricing can exceed the cost of information and investors can earn economic rents

We analyze how legal rules affect a firm’s decisions to go public, design of securities and initial ownership structure. By extensively using dual-class shares, Swedish IPOs are primarily privately controlled firms that owners take public to maintain control, to raise new capital and to expand by stock financed acquisitions. 50 % return for a seasoned equity offering. Five years after the IPO, the original owner still controls 2/3 (44%) of the votes (capital). Since control rents associated with a control block are particularly valuable in legal regimes that provide weak minority protection and allow for separation of votes from capital, control positions are never sold piecemeal. This explains the high ownership concentration in countries with such legal regimes. Keywords: JEL classification: G32

We find that dual-class firms experience less underpricing than single-class firms, and we explore several hypotheses which might explain this phenomenon. Compared to single-class firms, dual-class companies have slightly higher post-IPO institutional ownership and experience fewer control events. Although dual-class firms achieve a lower underpricing cost, they trade at lower prices relative to earnings and sales than do single-class IPOs. This pricing differential, combined with evidence that dual-class managers earn higher compensation and that dual-class shares are common among media and entertainment industry IPOs, suggests that dual-class ownership structures protect private control benefits.

Issuers. ” We are grateful for helpful comments from Soehnke Bartram, Ekkehart Boehmer,

This work examines the social structural and cognitive foundations of joint mental attitudes in complexly differentiated multi-agent systems, and incorporates insights from a variety of disciplines, including mainstream Distributed Artificial Intelligence, sociology, administrative science, social psychology, and organisational perspectives. At the heart of this work lies the understanding of the on-going processes by which socially and cognitively differentiated agents come to be socially and cognitively integrated. Here we claim that such understanding rests on the consideration of the nature of the influence processes that affect socialisation intensity. To this end, we provide a logic-based computational model of social influence and we undertake a set of virtual experiments to investigate whether and to what extent this process, when it is played out in a system of negotiating agents, results in a modification of the agents ' mental attitudes and impacts on negotiation performance.

In this paper we use agent-based computational modelling and computer simulations to examine the interrelationship between different selling strategies for going public. A great deal of recent empirical evidence suggests that to maximise the revenue raised from the shares sold in the public offering, it is fundamental to choose the appropriate design for the sale which, in turn, reflects the final ownership structure. This literature establishes that the market for shares is segmented and, particularly, that firms manage the sale of shares with the purpose of discriminating between relatively small and passive investors and applicants for large potentially controlling blocks. One of the key questions in this area, then, is: How and to what extent should this heterogeneity among potential investors influence the firm's strategy for selling shares? Here we attempt to address this question from the standpoint of using agent-based computational modelling and computer simulations. Results show that the design of the sale is an important determinant of the performance of the negotiation process through which the firm is sold. A sequential sale beginning with an initial public offering of dispersed shares, followed by a negotiated sale of a controlling block is, in general, more effective than other alternative selling strategies. Changing the negotiation protocol itself can act as an effective way of impacting upon the revenue raised and the length of the process. The interrelationship between the method of sale and the performance may also depend on the degree of cognitive accuracy that characterises the negotiating agents' mental representations of their physical and social environment. Key Words: agent-based modelling and simulation; sale of shares; ownership structure; i...

We test recent theories of when companies go public which predict that 1) more companies will go public when outside valuations are high or have increased, 2) companies prefer going public when uncertainty about their future profitability is high, and 3) firms whose controlling shareholders enjoy large private benefits of control are less likely to go public. Our analysis tracks a set of 330 privatelyheld German firms which between 1984 and 1995 announced their intention to go public to see whether, when, and how they subsequently sold equity to outside investors. Controlling for private benefits, we find that the likelihood of firms completing an initial public offering increases in the firm’s investment opportunities and valuations. We also show that these effects are distinct from factors that increase firms ’ demand for outside capital more generally.

Empirical evidence on the decision to go public is sparse, as most private firms do not report their financial results. In this paper, we take advantage of the fact that a number of private firms in the U.S. have public bonds, and are thus required to release a substantial amount of information in SEC filings. Our sample of private firms consists of firms that are typically larger and more leveraged than public firms. Compared with public firms that also have issued bonds, we find they are younger, but still more levered and revealing fewer growth opportunities. Finally, the private firms in our sample that subsequently attempt an IPO are more likely to have already sold equity to outsiders (typical private equity specialists) and thus seem less concerned about giving up control. We also find that size, age, bond ratings, and market to book ratios are important but that measures of growth opportunities are weak factors at best. Evidence from Corporate Bond Issuers In the U.S., people often view initial public offerings (IPOs) of equity as a natural phase in the life cycle of a firm, so that all successful start-ups eventually go public as a matter of course. Even the seemingly perpetually private firms United Parcel Service and Goldman Sachs recently succumbed to the allure of the market.