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1、Chapter5INVESTMENTBANKINGANDSECURITIESISSUANCEJAYR.RITTERUniversityofFlorida,GainesvilleContentsAbstract 256Keywords 2561. Introduction 2571.1. Overview 2571.2. Abriefhistoryofinvestmentbankingandsecuritiesregulation 2591.3. Theinformationconveyedbyinvestmentandfinancingactivities 2612. Seasonedequi
2、tyofferings(SEOs) 2632.1. Announcementeffects 2632.2. Evidenceonlong-runperformance 2652.3. Reasonsforunderperformance 2713. Short-runandlong-runreactionstocorporatefinancingactivities 2744. Initialpublicofferings(IPOs) 2794.1. Overview 2794.2. Short-rununderpricingofIPOs 2814.3. Alternativemechanis
3、msforpricingandallocatingsecurities 2814.4. Explanationsofunderpricing 2864.4.1. Dynamicinformationacquisition 2864.4.2. Prospecttheory 2864.4.3. Corruption 2884.4.4. Thewinnerscurse 2884.4.5. Informationalcascades 2894.4.6. Lawsuitavoidance 2904.4.7. Signalling 2904.4.8. TheIPOasamarketingevent 290
4、4.4.9. Summaryofexplanationsofnewissuesunderpricing 291This chapter has benefited from comments from seminar participants at Emory University, theUniversity of California at Davis, Korea University, Chung-Ang University (Korea), the Hong KongUniversityofScienceandTechnology,andCityUniversityofHongKo
5、ng,andfromAlonBrav,Hsuan-Chi Chen, Raghu Rau, Rene Stulz, Anand Vijh, Kent Womack, and Li-Anne Woo. The comments ofTimLoughranareparticularlyappreciated,asisresearchassistancefromDonghangZhang.HandbookoftheEconomicsofFinance,EditedbyG.M.Constantinides,M.HarrisandR.Stulz2003ElsevierB.V. Allrightsrese
6、rved256 J.R.Ritter4.5. Underwritercompensation 2914.6. Stabilizationactivities 2924.7. Hot-issuemarkets 2934.8. Marketactivityacrosscountries 2944.9. Long-runperformance 2955. Summary 299References 300AbstractThis chapter analyzes the securities issuance process, focusing on initial publicofferings(
7、IPOs)andseasonedequityofferings(SEOs).TheIPOliteraturedocumentsthree empirical patterns: 1) short-run underpricing; 2) long-run underperformance(althoughthisiscontentious);and3)extremetime-seriesfluctuationsinvolumeandunderpricing.WhilethechaptermainlyfocusesonevidencefromtheUSA,evidencefromothercou
8、ntriesisgenerallyconsistentwiththeUSApatterns.Alargeliteratureexplaining the short-run underpricing of IPOs exists, with asymmetric informationmodels predominating. The SEO literature documents 1) negative announcementeffects; 2) the setting of offer prices at a discount from the market price; 3) lo
9、ng-run underperformance; and 4) large fluctuations in volume. In addition to long-rununderperformancerelativetootherstocks,thereissomeevidencethatissuerssucceedattimingtheirequityofferingsforperiodswhenfuturemarketreturnsarelow.Whenexamining a large class of corporate financing activities, including
10、 equity offerings,convertiblebondofferings,bondofferings,openmarketrepurchases,stock-andcash-financedmergersandacquisitions,anddividendincreasesordecreases,severalpatternsemerge.Ingeneral,theannouncementeffectsarenegativeforactivitiesthatprovidecashtothefirm,andpositiveforactivitiesthatpaycashoutoft
11、hefirm.Furthermore,themarketgenerallyunderreacts,inthatlong-runabnormalreturnsareusuallyofthesamesignastheannouncementeffect.Inspiteofthelargeexpenditureofresourceson analyst coverage, there is little academic work emphasizing the importance ofthe marketing of financial securities. Only recently hav
12、e papers begun to focus onthe corporate financing implications if firms face variations in the cost of externalfinancingduetothemispricingofsecuritiesbythemarket.Keywordscorporatefinance,initialpublicofferings,seasonedequityofferings,underwriting,investmentbankingJELclassification:G24,G32,G14Ch.5: I
13、nvestmentBankingandSecuritiesIssuance 2571. Introduction1.1. OverviewThis chapter analyzes the securities issuance process, largely taking the choice ofwhat security to offer as given. Extensive attention is devoted to the controversiessurroundinglong-runreturnsoncompaniesissuingequity,includingboth
14、initialpublicofferings (IPOs) and seasoned equity offerings (SEOs). For IPOs, attention is alsodevoted to the mechanisms for selling IPOs, where considerable variation exists inglobal practices. Theories and evidence regarding the first-day returns on IPOs arealsocovered.Mostofthischapterisdevotedto
15、equityissues,eventhoughfixed-incomesecuritiesswamp equities in terms of the dollar value of issue volume. This is not becausedebt securities are unimportant, but because the pricing and distribution of fixed-incomesecuritiesisgenerallymuchmorestraightforward.Specifically,creditriskisthe main determi
16、nant of the relative yield on corporate bonds of a given maturity,andindependentratingagenciessuchasMoodysprovidecreditratingsonbonds.Incontrast,thepayoffsonequitieshavesubstantialupsidepotentialaswellasdownsiderisk,andarethusmoresensitivetofirm-specificinformation.Externalfinancingiscostly.Whenafirmdecidestoissuesecuritiestothepublic,it almost always hires an intermediary, typically an investment banking firm. Theissuingfirmpaysacommission,orgrossspread,andreceivesthenetproceeds
