Beverly B. Marshall

An Examination of Board Stability and the Long-Term Performance of Initial Public Offerings

We study the long-term stock performance of initial public offerings (IPOs). We examine how past performance affects the board of directors’ stability and how changes in boards affect subsequent performance. We introduce a dynamic, scale invariant stability metric to measure such changes. Our results indicate that among IPO firms, those with poorer initial performance experience greater board instability and that greater board stability is associated with improvement in subsequent performance. These results indicate that board members leave poorly performing firms, rather than shareholders replacing ineffective boards. Retaining boards that experience initial good performance is associated with continued success.

The influence of underwriter reputation, keiretsu affiliation, and financial health on the underpricing of Japanese IPOs

Abstract This research examines initial public offering (IPO) underpricing in Japan between 1980 and 1998. Consistent with prior research, we find no evidence that underwriter reputation influences the level of mispricing. Keiretsu-affiliated firms are more fully priced, though healthy firms and healthy keiretsu-affiliated firms are significantly more underpriced, than are other firms. The mispricing of healthy firms occurs prior to implementation of the discriminatory price auction system and is consistent with a high demand for these IPO firms. Reduced mispricing of keiretsu firms during the post-auction period is consistent with the notion that they have more stable earnings than other firms.

Unit IPOs: What the Warrant Characteristics Reveal about the Issuing Firm*

In this paper, we test Chemmanur and Fulghieris (1997) predictions regarding a unit IPO firms choice of signaling mix as a function of firm riskiness. We find evidence that both the proportion of firm value sold as warrants and the percentage of underpricing is increasing in firm riskiness. Although we find some evidence at extreme levels of ownership that the fraction of equity retained is decreasing in firm riskiness, we can neither confirm nor reject this prediction. Our results provide evidence of a trade-off between the signaling choices modeled by Chemmanur and Fulghieri.

The effect of firm financial characteristics and the availability of alternative finance on IPO underpricing

This article tests the hypothesis that the financial characteristics of the issuing firm, along with the availability of alternative sources of financing, are important determinants of the level of underpricing. While risk and its relationship to underpricing have been examined in previous studies, liquidity risk is unique because of its special implications for a firm’s bargaining position with the underwriter. Consistent with my hypothesis, firms with greater liquidity concerns at the IPO experience greater underpricing. On the other hand, firms with higher levels of venture capital funding and/or debt financing are more fully priced.

Does quantity reflect quality? Financial disclosure size and future performance

Purpose – This study seeks to investigate whether a firms financial disclosure size can help investors predict performance. Design/methodolgy/approach - Controlling for size and industry, the relationship between financial disclosure size and subsequent stock performance for all Standard and Poors (S and P) 500 firms over a seven-year period is examined. Findings - It is found that firms with smaller 10-Ks tend to have better subsequent performance relative to their industries. However, the findings suggest that the performance explanation may not lie in the size of the 10-K itself. Firms with smaller 10-Ks tend to perform better because they are smaller in terms of total assets and more focused, with fewer business segments. Research limitations/implications - While the study is limited to examination of S and P 500 firms, no consistent evidence is found of a relation between changes in a firms disclosure size and future performance changes. Practical implications - The results suggest that more disclosure relative to a firms size is not necessarily bad. Investors attempting to predict future firm performance cannot use the firms disclosure size alone. Originality/value - This paper extends two recent Merrill Lynch studies that appear to contradict the extant financial literatures view that increased disclosure reduces the informational asymmetry problem. While the results confirm the findings of these studies, they suggest that the performance explanation may not lie in the size of the 10-K itself.

Early internet IPOs versus subsequent entrants

This paper examines whether investors in early Internet IPOs earned superior returns to those who invested in later entrants. We document three differences between early public firms in a new Internet technology and their followers: underpricing, operating characteristics at the IPO, and stock price performance after the IPO. We find that there is value in going public relatively early in a new Internet technology. Specifically, long-term returns are significantly higher for the early entrants. We also find evidence, consistent with previous studies that examine hot IPO markets, that the early public firms have better operating characteristics at the IPO than later entrants.

Underwriter Compensation Structure: Can It Really Bond Underwriters?

Underwriter compensation can be structured as all cash or a combination of cash and warrants. Using a sample of small initial public offerings (IPOs), we find that underwriter compensation contracts that include warrants in exchange for cash can serve as certification for IPO firms by substituting for reputation capital. When underwriters accept warrants when they could have received more cash compensation, the IPOs avoid the well documented long-run underperformance. However, when underwriters receive warrants after maximizing cash compensation, the IPO experiences higher underpricing and poorer long-run performance. The findings are consistent with a motivation by the underwriters to circumvent regulatory constraints.