100% satisfaction guarantee Immediately available after payment Both online and in PDF No strings attached
logo-home
Previously searched by you
Previously searched by you
logo
Advanced Corporate Finance: IPOs £4.99
Add to cart
Quickly navigate to
Preview
  2.  
  3. The University Of Manchester (UOM)
  4.  
  5. BMAN30111 Advanced Corporate Finance

Lecture notes

Advanced Corporate Finance: IPOs
 0 purchase

This lecture notes is about Initial Public Offerings. The notes includes advantages and disadvantages of IPO, why would company choose to do IPO, and the process of IPOs. It also discuss the Anomalies in IPO, for example short-run underprice, Long-run Underperformance and Hot Issue Market Phenomeno...

[Show more]

Preview 2 out of 8  pages

Document information

  • May 27, 2023
  • 8
  • 2022/2023
  • Lecture notes
  • Maria-teresa marchica, amedeo de cesari
  • Ipos

Subjects

Connected book

book image

Book Title:

Author(s):

  • Edition:
  • ISBN:
  • Edition:

More summaries for

All for this textbook (6)

Written for

All documents for this subject (4)

Seller

avatar-seller
phyllisho

Content preview

Capital Financing

Advantages vs Disadvantages
Advantages
1. Cash to make investment
2. Strength Equity Base —- Reduce leverage
3. More liquidity than selling to one institution
4. More information, understanding to the company (reports…)
5. Better reputation
6. Act as exit strategy for VCs
7. Diversifying risk of original owners (tolerate higher profit variability)

Disadvantages
1. Financial costs
- Expensive
- Underpricing stocks
- Increase legal requirements (reports, financial statements, etc)
2. Stock-price emphasis
- Short-term orientated for management, not friendly to long-term investment
projects
- Separate ownership and control (lost of control for founder)
- Hostile take-over risk (Eg. Hermes)
3. Being watched
- More attention and pressure from public towards management
- More disclosure to product market competitors (unfriendly to tech company)




Reasons for IPOs
For all countries, main reasons is financing —
Main differences between US and Europe: Europe care more about reputation and American
care more about costs in IPOs




Process of IPOs
1. Underwrite
- Two kinds of underwriters: Lead underwriter (one underwrite) and Syndicate
(a group of underwriter)
- Two kinds of offering
i) Best-efforts: investment bank try the best to sell to public and buy
the rest of stock unsold

, ii) Firm-commitment: underwrite the issue. Investment banks buy
everything sponsor price and resell to the public in offer price
But underwriters receives compensation spread:
Spread = offer price - sponsor offer
2. Valuation of the company
3. Road show: senior management and its underwriters travel around to promote the
company and explain the rationale for the offer price
4. Alternative underwriting practices:
i) Book building: Through communication with investors, underwriters tries to
measure demand curves and decide the offer price based on it
ii) Fixed-price offering (Offer for sale): underwrites set price for final offer in
advance, and offer share by inviting subscriptions from retail and institutional
investors
iii) Placing: target institutional investors, it’s not normal underwritten
iv) Auction 拍卖




Anomalies in IPO
a) Short-Run Underprice
● Post IPOs, ‘short run’ is taken as the first day/week/month of trading
Offer price for stock ‘i’ is Pi0
● Price at the first trading day Pi1
Ri1 = (P1-P0)/ P0 greater than 0 (increase in stock price)
● Market adjusted measure are used to quantify the abnormal return at the end
of trading day (Market adjusted abnormal return = MAARi1)
Actual return = Ri1 = (P1-P0)/P0
Abnormal return = Expected return - Actual return
( 1+ Ri 1)
MAARiq = 100 x [ −1 ]
(1+ Rm 1)
● Shares are offered at a price much lower than trading price on the first
day of listing
● Eg. VA Linux Systems 1999: offer price $ 30, by the end of the day $ 239

Theories for why is it underpriced
1) Risk- averse underwriter (Hypothesis)
- Underwriters underprice to reduce risk of unsuccessful
IPO (most IPOs are firm-commitment offers)
- So firm-commitment IPOs are more underpriced than
Best-effort ones
2) The Winner’s Curse (Hypothesis)
- Fixed amount of share issued, so ration starts when
there’s excessive demand
- 2 kinds of investors: perfectly formed and completely
informed

The benefits of buying summaries with Stuvia:

Guaranteed quality through customer reviews

Guaranteed quality through customer reviews

Stuvia customers have reviewed more than 700,000 summaries. This how you know that you are buying the best documents.

Quick and easy check-out

Quick and easy check-out

You can quickly pay through credit card for the summaries. There is no membership needed.

Focus on what matters

Focus on what matters

Your fellow students write the study notes themselves, which is why the documents are always reliable and up-to-date. This ensures you quickly get to the core!

Frequently asked questions

What do I get when I buy this document?

You get a PDF, available immediately after your purchase. The purchased document is accessible anytime, anywhere and indefinitely through your profile.

Satisfaction guarantee: how does it work?

Our satisfaction guarantee ensures that you always find a study document that suits you well. You fill out a form, and our customer service team takes care of the rest.

Who am I buying these notes from?

Stuvia is a marketplace, so you are not buying this document from us, but from seller phyllisho. Stuvia facilitates payment to the seller.

Will I be stuck with a subscription?

No, you only buy these notes for £4.99. You're not tied to anything after your purchase.

Can Stuvia be trusted?

4.6 stars on Google & Trustpilot (+1000 reviews)

65040 documents were sold in the last 30 days

Founded in 2010, the go-to place to buy revision notes and other study material for 15 years now

Start selling

Recently viewed by you

Essay ·

(0)

Essay Unit 30 - Health Psychology

Summary ·

(1)

CE10: Market Insights Management

Lecture notes ·

(0)

Physical Sciences: Gravity and Electric fields

Exam (elaborations) ·

(0)

NU 623 Advanced Adult Health MED CHART

Exam (elaborations) ·

(0)

STIMMT AQA GCSE GERMAN – KAPITEL 2

Summary ·

(1)

pathologie spijsverteringskanaal

Exam (elaborations) ·

(0)

FDM Exam 1 Questions And Answers

Exam (elaborations) ·

(0)

Hoofdstuk 1: De prenatale periode

Exam (elaborations) ·

(0)

M THE COMPLETE PERMIT TECHNICIAN
£4.99
  • (0)
Add to cart
Added