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This study is set against the background of the growing internationalization of venture capital (VC) investing and is the first global comparison of the returns generated by individual domestic and cross-border deals. We examine investments worldwide during 1971 to 2009 and find that cross-border investments significantly underperform compared with equivalent domestic investments. Returns are negatively affected by geographic distances, cultural disparities, and institutional differences between the home and host countries. Returns on cross-border and domestic deals also decline after the late 1990s. International portfolio diversification and the saturation of domestic markets may explain why VC investors make cross-border investments despite poor expected returns.

We show that public suppliers extend more trade credit than their private counterparts. The impact of stock market listing on accounts receivable is more pronounced among firms that are financially more constrained or more reliant on external finance. Moreover, firms significantly increase their trade credit provision following equity issuances in stock exchanges. These results are consistent with the argument that stock market listing status improves firms' access to external sources of financing, especially equity capital, thus enhancing their ability to offer more trade credit to customers.

We investigate loan price in mergers and acquisitions (M&As), using hand-matched loan information for a sample of 512 U.S. M&A transactions. We find the relative size of a deal constitutes a prominent determinant of the loan price measured by the all-in spread drawn (AISD). This result is robust to several specifications that address endogeneity concerns. Cross-sectional analyses show that aggravated credit risk and information uncertainty after M&A go some way towards explaining lenders' concerns over large relative deal size. Further analysis demonstrates higher AISD is associated with lower post-transaction performance, indicating loan price factors in the risk of poor post-transaction performance correctly.

This paper examines differences in the use of trade credit by publicly listed firms and their privately held counterparts. We show that public firms maintain a significantly lower level of trade credit than private firms. This finding is consistent with the argument that public firms rely less on supplier financing because of their greater access to cheaper and less risky sources of external capital. We further find that while public and private firms actively seek to adjust toward their optimal trade credit levels, the former firms experience faster adjustment. The recent financial crisis had differential effects on the trade credit ratios of public and private firms.

This paper examines the benefits to local venture capital (VC) firms of syndicating with foreign partners. We find that post-syndication, local VC firms change their investment behavior from investing in low risky sectors to high risky sectors. Further, a larger number of their portfolio companies are successfully exited, suggesting improved performance. We conjecture that this outcome is due to learning effects between local and foreign VC firms. We find that the learning process for local VC firms is substantial when their foreign partner is either a North American or European VC firm. Our results show that the benefits of cross-border VC syndications between local and foreign VC firms are mutual.

We study how investors respond to ‘superficial’ mutual-fund name changes that occur for no fundamental reasons. We find that such name changes remain widespread even after regulation to curb potentially misleading name changes (SEC Rule 35d-1). Superficial changes are more widespread than previously studied ‘misleading’ changes that are not accompanied by corresponding portfolio adjustments reflecting the investment style suggested by the new name. Superficial changes appear to be driven by managerial incentives. Investors react to superficial changes with increased fund flows but appear to gain no benefit through improved performance or lower fees. On the contrary, name-change funds underperform as a group. Our findings highlight inefficiencies in the mutual-fund market and hold important implications for the stakeholders involved.

This paper investigates the effect of the Sarbanes–Oxley Act (SOX) on the relation between institutional ownership (IO) and firm innovation. We find that US firms investing in innovation attract more institutional capital post-SOX. Prior literature identifies two SOX effects on the average US firm that could drive this relation, that is, a decreased level of information asymmetry (direct effect) and the consequent increased market liquidity (indirect effect). Our findings overwhelmingly support the direct effect. In particular, we find that the positive relation between IO and innovation post-SOX is mainly driven by passive and dedicated institutional investors. These investors benefit greatly from a reduction in the firm's information asymmetry but receive little gain from improvements in market liquidity, given their long-term trading horizon. Our results are robust to different model specifications, including difference-in-differences tests, which alleviate concerns about the impact of confounding effe...

We investigate the effect of initial public offerings (IPOs) on the evolution of debt maturity by tracking a sample of US firms that went public over the period 1998–2011. Our findings reveal a significant and permanent increase in debt maturity post-IPO. The short-term debt ratio drops by nearly a fifth in the first 2 years after the IPO. These findings are economically significant and robust to controlling for the endogeneity in the listing decision. However, the lengthening of the post-IPO debt maturity is only evident in small, high-growth, and highly levered firms. This finding lends greater support to asymmetric information models than theories based on the agency costs of debt. There is some support for the argument based on the agency costs of equity as the IPO effect on debt maturity is only significant for firms with a high dilution ratio. Finally, the IPO effect varies with macroeconomic conditions as the increase in debt maturity post-IPO was most pronounced during the recent financial crisis of 2007–2008.

We examine the determinants of an IPO firm's decision to trade on a when-issued market and find that better quality firms are more likely to trade on this market. Our ‘what-if’ analysis shows that for companies that choose to have when-issued trading, the actual offer price is almost 26% higher than it would have been had these firms chosen not to trade on this market. We interpret this higher offer price as a ‘rent’ that investors pay to acquire shares of such companies. We also show that the informational accuracy of the UK when-issued market is better than that of continental European when-issued markets.

PurposeThe aim of the paper is to study the long‐run under‐performance of UK initial public offerings (IPOs) by relating it to the pre‐IPO financial performance of the firm as well as the managerial decisions taken before the IPO.Design/methodology/approachThe three‐year share returns of UK IPOs is studied using various methodologies such as buy and hold returns, cumulative abnormal returns and Fama and French three‐factor returns.FindingsIt was found that the percentage of equity issued and the degree of multinationality of a firm are the key predictors of its performance after the IPO. It is also found that small firms behave differently from large firms and suffer from worse long‐run performance than large firms.Research limitations/implicationsThere is a great need for future research to focus on ownership structure and long‐run returns. Further, a focus on the level of debt and venture capital financing in the pre‐IPO period may also uncover important relationships with the long‐run performance of a firm.Practical implicationsThe results obtained from this study provide important information for the prospective long term investors in new issues. While pre‐IPO performance of a firm cannot predict the post‐IPO performance with certainty, nevertheless the results of this study suggest that long‐term investors should show caution while deciding on long term investment in IPO firms.Originality/valueThe paper explains the post‐IPO underperformance of firms by relating it to the pre‐IPO managerial decisions made in the firm. It also documents the role of multinationality in explaining long run underperformance.

We examine the determinants of an IPO firm’s choice to trade on a when-issued market and if the decision to trade on this market has any impact on the pricing of IPO shares. We find that companies that are larger, less risky, have higher future growth opportunities and are underwritten by reputable underwriters are more likely to choose to trade on the when-issued market. Our ‘what-if’ analysis shows that the decision to have a when-issued market affects the setting of the offer price. For companies that have when-issued trading, the actual offer price is 25% higher than it it would have been had these firms not had a when-issued market. We interpret this higher offer price as a ‘rent’ that investors pay to acquire shares of such companies. Interestingly this rent is paid mostly in those IPOs where retail investors are allowed to participate in the offer. When-issued market appears to be highly informative for investors and has a positive impact on the trading volume on the first day of unconditional trading.

This study examines the survival rates of initial public offerings (IPOs) listed on the Hong Kong stock exchange between 1990 and 2010 and tracked until the end of 2013. The results show that the average survival rates on the Hong Kong market are high compared to other developed markets and the lowest is 78 percent over five years post listing. Furthermore, we find that the IPO firms are exposed to low failure risks even during and after financial crises. Investigating the determinants of survival rates, we find that the proportions of shares allocated to institutional investors and investor demand at the time of listing, along with initial investors’ retained ownership, significantly increase survival rates. In addition, the survival rates are high when the IPO is family controlled and investors have long term investment horizon.

We investigate the effect of initial public offerings (IPOs) on the evolution of debt maturity by tracking a sample of US firms that went public over the period 1998-2011. Our findings reveal a significant and permanent increase in debt maturity post-IPO. The short-term debt ratio drops by nearly a fifth in the first two years after the IPO. These findings are economically significant and robust to controlling for the endogeneity in the listing decision. However, the lengthening of the post-IPO debt maturity is only evident in small, high-growth, and highly levered firms. This finding lends greater support to asymmetric information models than theories based on the agency costs of debt. There is some support for the argument based on the agency costs of equity as the IPO effect on debt maturity is only significant for firms with a high dilution ratio. Finally, the IPO effect varies with macroeconomic conditions as the increase in debt maturity post-IPO was most pronounced during the recent financial crisis of 2007-08.

When a company offers shares in an initial public offering (IPO), existing owners often enter into lock-in agreements prohibiting them from selling shares for a specified period after the IPO. There is some recent US evidence of predictable share-price movements at the time of expiry of these lock-in agreements. Using a sample of 188 firms, 83 classified as high-tech and 105 others, that went public on the London Stock Exchange (LSE) during 1992–1998, we focus on the characteristics of lock-in agreements in the UK and on the behaviour of stocks returns around the lock-in expiry date. We find that the lock-in contracts of LSE-listed firms are much more complex, varied and diverse than US contracts, which usually standardise the lock-in period at 180 days after the IPO. We also find evidence of negative abnormal stock returns at and around lock-in expiry of similar magnitude to those reported in US studies. However, these abnormal returns are typically not statistically significant. While the deterioration in stock returns immediately around the expiry date appears to be particularly much more pronounced for high-tech stocks than for others, the differences in performance are not statistically significant.

We examine the IPO when-issued/conditional market of the London Stock Exchange which has a regulatory setting that is very different from that of other developed markets. Our results show that the decision to have a when-issued market affects the setting of the offer price. For companies that have a conditional trading the actual offer price is £3.4 but would have been £2.03 had these firms not had a when-issued market. So, investors actually pay a ‘rent’, through a higher offer price, in order to acquire shares of companies that will be traded in the when-issued market. In addition, companies that are larger, less risky, with higher future growth opportunities and underwritten by more reputable underwriters are more likely to have a when-issued market. Furthermore, the when issued market appears to be highly informative for investors and affects the volume in the first day of trading.

Does multinationality affect the initial public offering (IPO) performance of entrepreneurial firms? Theoretical arguments can be made for a positive effect of multinationality as well for a negative effect. We examine this question empirically by analyzing IPO data for 240 U.K. firms. We find that multinationality has significant and positive effects on long run IPO performance. This suggests that the market perceives entrepreneurial firms with multinational activities as possessing unique intangible assets that are indicative of future financial success. Factors affecting the IPO performance also differ systematically between firms with multinational operations and those without multinational operations. Stocks of intangible assets and the quality of the network significantly affect the performance of entrepreneurial IPO firms that “go global”. In contrast, domestic IPO firm performance is affected by offer size and underwriters’ perception of firm quality. The findings have important implications for entrepreneurial firms who are making decisions on “going global” and “going public”. This paper is forthcoming in Applied Financial Economics.

The distinct regulatory design of Indian IPOs permits an empirical evaluation of IPO underpricing models against those that model IPO initial returns as a consequence of overpricing. Characteristics of the Indian bookbuilding process allow us to study the timing and subscription patterns of different investor groups and to dissect IPO returns into two distinct components: one relating to pre-listing pricing by the underwriter and the other to the initial return from first day’s trade in the post-listing period. We find that a transparent bookbuilding process can alleviate the winner’s curse problem for retail investors but that does not eliminate IPO initial returns. Further, IPO initial returns persist but do not increase even if investment bankers are stripped of their discretionary allocation power. These results are not supportive of voluntary underpricing models. We find that the unmet demand of non-institutional investor groups is the primary driver of the IPO initial return. We consider these results to be supportive of the Derrien (2005) and Ljungqvist, Nanda and Singh (2006) models and consistent with the conclusions in Loffler, Panther and Theissen (2005) and Ljungqvist, Cornelli and Goldreich (2006).

We analyze detailed monthly data on U.S. open market stock repurchases (OMRs) that recently became available following stricter disclosure requirements. We find evidence that OMRs are timed to benefit non-selling shareholders. We present evidence that the profits to companies from timing repurchases are significantly related to ownership structure. Institutional ownership reduces companies' opportunities to repurchase stock at bargain prices. At low levels, insider ownership increases timing profits and at high levels it reduces them. Stock liquidity increases profits from timing OMRs.

Certain unique characteristics of the Indian bookbuilding process allow us to study the timing and subscription pattern of different investor groups and to dissect the IPO returns into two distinct components: one relating to pre-listing underpricing set by the underwriter and the initial return from first day's trade in the post-listing period. The transparency of the bookbuilding process in India alleviates the winner's curse problem for the uninformed investors and we find that non-institutional buyers follow institutional investors' subscription patterns when bidding for the IPO shares. However, Indian IPOs still exhibit significant positive initial return in the post-listing aftermarket, even after the removal of the underwriters' power of discretionary allocations to preferred institutional clients. These results are inconsistent with Rock's (1986) winner's-curse explanation for positive IPO initial returns and also with that of Benevineste and Spindts' (1989) preferred allocation/information extraction quid pro quo model. We find that the IPO initial return is driven primarily by the unmet demand of the noninstitutional investor groups and consider these results to be generally supportive of Derrien (2005) and Ljungqvist, Nanda and Singh (2006).

Certain unique characteristics of the Indian bookbuilding process allow us to study the timing and subscription pattern of different investor groups and to dissect underpricing into two distinct components: one relating to pre-listing, set by the underwriter and the other from the post-listing period, which is determined by the market. Our results show the presence of sequential learning among IPO investors. Retail and Non-institutional investors follow the Institutional investors' subscription patterns when bidding for shares. The transparency of the bookbuilding process in the Indian IPOs helps alleviate the winner's curse problem for the non-institutional and retail investors. We also show that market underpricing is primarily driven by the unmet demand of the non-institutional investor groups. This insight is unprecedented in the IPO literature.

IPOs on the EuroNMs have shown very high underpricing.The majority of these IPOs possess specific characteristics such as lock-up agreements, venture-capital financing, ownership by the underwriter and over-allotment options.We study how these characteristics influence the underpricing of firms listed on the two largest EuroNM stock exchanges, the Neuer Markt of Germany and the Nouveau Marche of France.We find that the high underpricing in these two markets contrary to the evidence on the US - is not driven by insiders selling behaviour.However, the large underpricing is caused by the high degree of riskiness of the issuing firms and by the partial adjustment phenomenon of offer prices to compensate institutional investors for the truthful revelation of their demand for the shares.In contrast, venture-capital involvement does not affect underpricing.For France, lock-up agreements act as substitutes to underpricing, but not so for Germany.We also explore the reasons for the large difference in underpricing between the German and the French IPOs: German firms are more underpriced because they are more risky, have larger price revisions, have less stringent VC lock-up contracts and mostly go public during the hot issue period of 1999-2000 when the general level of underpricing in all IPO markets is substantially higher.

Most UK IPOs include lock-in agreements, which prevent the directors and other initial shareholders from selling their shares for a specified period after the IPO. Using a sample of 94 UK IPOs, we analyse their stock performance around the time of expiry of the lock-in agreements. We also look at the volume and pattern of directors' sales before and after the expiry of the lock-in agreement. We find that the average cumulative abnormal return around the lock-in expiry is negative and is significantly different from zero. However, examining stock performance around the lock-in expiry in the UK is not straightforward. The announcement effect of directors' sales on the stock performance is examined as well. The increase in stock sales by directors in the weeks immediately after the lock-in expiry is substantial. Interestingly and unexpectedly, the sub-sample of the companies that reported directors' sales in the period of interest had lower negative average cumulative abnormal returns, albeit not statistically significant, than the sub-sample of the companies that had no reported sales. Finally, the likelihood of directors' sales occurring around the expiry of the lock-in agreement is investigated.

The short run underpricing of initial public offerings (IPOs) is one of the best documented anomalies in finance. The Rock model explains this anomaly in terms of horizontal information asymmetry amongst investors. In this paper we use a comprehensive IPO data from the UK main market for the period 1989-96 to test the Rock model against several other alternatives. We propose that horizontal information asymmetry should be smaller for investment trust IPOs as compared to conventional issuing companies. The Rock model then predicts that investment trust IPOs should display less underpricing than conventional issuing companies. Our findings support the Rock model and are consistent with previous studies of investment trust IPOs. A revised version of this paper has appeared: Applied Financial Economics, vol.12(10), pp.697-706, 2002.