The Theory of Matrices. By F R. Gantmacher. Two volumes, pp. 374 and 276. 1959. (Translated from the Russian by K. A. Hirsch; Chelsea Publishing Company, New York)

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. Instead, we believe future progress in the literature will come from nonrational and agency conf lict explanations. We describe some promising such alternatives. From 1980 to 2001, the number of companies going public in the United States exceeded one per business day. The number of initial public offerings ~IPOs! has varied from year to year, however, with some years seeing fewer than 100 IPOs, and others seeing more than 400. These IPOs raised $488 billion ~in 2001 dollars! in gross proceeds, an average of $78 million per deal. At the end of the first day of trading, their shares traded on average at 18.8 percent above the price at which the company sold them. For an investor buying shares at the first-day closing price and holding them for three years, IPOs returned 22.6 percent. Still, over three years, the average IPO underperformed the CRSP value-weighted market index by 23.4 percent and underperformed seasoned companies with the same market capitalization and book-to-market ratio by 5.1 percent. In a nutshell, these numbers summarize the patterns in issuing activity, underpricing, and long-run underperformance, which have been the focus of a large theoretical and empirical literature. We survey this literature, focusing on recent papers. Space constraints force us to take a U.S.-centric point of view and to omit a description of the institutional aspects of going public. The interested reader can consult Ellis, Michaely, and O’Hara ~2000!,

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A Review of IPO Activity, Pricing, and Allocations

I integrate under firm-specific benefit functions to estimate that the capitalized tax benefit of debt equals 97 percent of firm value (or as low as 43 percent, net of personal taxes) The typical firm could double tax benefits by issuing debt until the marginal tax benefit begins to decline I infer how aggressively a firm uses debt by observing the shape of its tax benefit function Paradoxically, large, liquid, profitable firms with low expected distress costs use debt conservatively Product market factors, growth options, low asset collateral, and planning for future expenditures lead to conservative debt usage Conservative debt policy is persistent

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How Big Are the Tax Benefits of Debt

Начала политической экономии и податного обложения = The principles of political economy and taxation

We fit nonlinearly mean-reverting models to real dollar exchange rates over the post-Bretton Woods period, consistent with a theoretical literature on transactions costs in international arbitrage. The half lives of real exchange rate shocks, calculated through Monte Carlo integration, imply faster adjustment speeds than hitherto recorded. Monte Carlo simulations reconcile our results with the large empirical literature on unit roots in real exchange rates by showing that when the real exchange rate is nonlinearly mean reverting, standard univariate unit root tests have low power, while multivariate tests have much higher power to reject a false null hypothesis.

Nonlinear Mean‐Reversion in Real Exchange Rates: Toward a Solution To the Purchasing Power Parity Puzzles

We study the dynamics of initial public offerings (IPOs) by examining the tradeoff between an entrepreneur's private benefits, which are lost whenever the firm is publicly traded, and the gains from diversification. We characterize the timing dimension of the decision to go public and its impact on firm value and on the evolution of firm risk over time. By endogenizing the timing of the decision to go public, we explain several puzzling phenomenon: the clustering of IPOs and buyouts in time, the industry concentration of IPO waves, the high incidence of re-privatization of recent IPOs, and the long-run under-performance of recently issued stock relative to the shares of longer-listed companies.

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The Timing of Initial Public Offerings

1. Financial Valuation Tools 2. Using Financial Reporting Information 3. Valuation: Processes and Principles 4. Building Pro Forma Financial Statements 5. Analyzing the Firm's Environment 6. Analyzing the Firm's Operations 7. J. M. Smucker - Projecting Financial Performance 8. Capital Structure and the Cost of Capital 9. Estimating Discount Rates 10. Valuation by Multiples 11. Valuing the Firm's Debt 12. Valuing Equity Cash Flows Directly 14. Final Remarks

Simon Benninga

Papers

The Timing of Initial Public Offerings

Corporate Finance: A Valuation Approach

The optimal hedge ratio in unbiased futures markets

The timing of initial public offerings

Optimal Hedging in the Futures Market Under Price Uncertainty