Dmitri Boreiko

Stabilization Activity in Italian IPOs

Commission Regulation (EC) No 2273/2003 regulates the price stabilization activities for equity initial public offerings (IPOs) in Europe as a form of permitted market manipulation. To test the actual practices and effects of stabilization we empirically analyze the support provided by the underwriters of 141 Italian IPOs from 2000 through to 2008. We find that the underwriters support the share prices not only by short covering, but also by posting pure stabilization bids. Pure short covering is mostly used by more reputable underwriters for IPOs with higher institutional participation and more secondary shares in the offer, whereas the opposite is true for pure stabilization IPOs. We try to identify some patterns in underwriters’ aftermarket activities and analyze the extent to which the stabilization activity, permitted for four weeks after trading begins, produces temporary or permanent effects on share prices.

Lockup clauses in Italian IPOs

Virtually all IPO prospectuses feature lockup provisions that limit pre-IPO shareholders’ share sales for some period of time after negotiations start. The aim of the paper is to analyze in-depth voluntary lockups in the Italian setting and to draw conclusions about their effect both on different shareholder classes and on share prices. We show that the lockups are considerably longer and heterogeneous than US or European evidence shows, and their duration and size serves primarily as a commitment device to alleviate the moral hazard problem faced by the incumbent shareholders. We show that abnormal returns around the lockup expiration dates are associated solely with venture-capital backed IPOs.

Traces of business cycles in credit-rating migrations

Using migration data of a rating agency, this paper attempts to quantify the impact of macroeconomic conditions on credit-rating migrations. The migrations are modeled as a coupled Markov chain, where the macroeconomic factors are represented by unobserved tendency variables. In the simplest case, these binary random variables are static and credit-class-specific. A generalization treats tendency variables evolving as a time-homogeneous Markov chain. A more detailed analysis assumes a tendency variable for every combination of a credit class and an industry. The models are tested on a Standard and Poor’s (S&P’s) dataset. Parameters are estimated by the maximum likelihood method. According to the estimates, the investment-grade financial institutions evolve independently of the rest of the economy represented by the data. This might be an evidence of implicit too-big-to-fail bail-out guarantee policies of the regulatory authorities.

European Spin-Offs: Origin, Value Creation, and Long Term Performance

This paper tests the empirical validity of theoretical predictions on corporate spin-offs motivations and ex-post performance. Using a unique data set of completed spinoffs in twelve European countries we show that spin-off decisions are frequently triggered by firm’s governance changes, such as the appointment of a new CEO or a takeover threat. Post-transaction long-run stock returns and operating performance are observed for spin-off firms only, and mostly for internally-grown business units and parent-related (non-focusing) subsidiaries. We find no evidence that post-spin-off mergers of either parents or subsidiaries enhance long-term performance, or that focus-increasing spin-offs lead to efficiency improvements.

Prospectus Liability and the Role of Gatekeepers as Informational Intermediaries: An Empirical Analysis of the Impact of the Statutory Provisions on Italian IPOs

This Article analyzes market reaction to the introduction into Italian legislation of a statutory system of (IPO) prospectus civil liability enacted in April 2007 on the basis of Directive 2003/71/EC. In particular, we study the effects of the new regulation on gatekeepers, such as underwriters and auditors who are commonly qualified as information intermediaries. We analyse the effects on average underpricing, fees charged by the underwriters, syndicate composition and reputation, and auditor participation. Although we find only weak statistical evidence that the level of underpricing has increased after April 2007, there is a statistically significant tendency to have one of the Big Four auditors in post-April 2007 IPOs, with lower participation of international banks in syndication and sharing of prospectus liability. Moreover, after April 2007 we observe an increase in the reputation of the underwriters acting as ‘responsabile del collocamento’ with lower underwriters’ fees charged.

Identification of hidden Markov chains governing dependent credit-rating migrations

ABSTRACT Three models of dependent credit-rating migrations are considered. Each of them entails a coupling scheme and a discrete-time Markovian macroeconomic dynamics. Every credit-rating migration is modeled as a mixture of an idiosyncratic and a common component. The larger is the pool of debtors affected by the same common component, the stronger is the dependence among migrations. The distribution of the common component depends on macroeconomic conditions. At every time instant, the resulting allocation of debtors to credit classes and industries follows a mixture of multinomial distributions. Dealing with M non default credit classes, there are 2M theoretically possible macroeconomic outcomes. Only few of them occur with a positive probability. Restricting the macroeconomic dynamics to such outcomes simplifies estimation. A heuristics for identifying them is suggested. Using the maximum likelihood method, it was tested on a Standard and Poors (S&Ps) data set.

Modeling of Dependent Credit Rating Transitions Governed by Industry-Specific Markovian Matrices

Two coupling schemes where probabilities of credit rating migrations vary across industry sectors are introduced. Favorable and adverse macroeconomic factors, encoded as values 1 and 0, of credit class- and industry-specific unobserved tendency variables, modify the transition probabilities rendering individual evolutions dependent. Unlike in the known coupling schemes, expansion in some industry sectors and credit classes coexists with shrinkage in the rest. The schemes are tested on Standard and Poor’s data. Maximum likelihood estimators and MATLAB optimization software were used.

Corporate Governance and Restructuring Through Spin-Offs: European Evidence

Various aspects of corporate governance in the process of corporate restructurings are analyzed using the sample of completed spin-offs in 12 European countries between 1989 and 2005. We show that spin-off decisions are often triggered by firm’s governance earthquakes, such as an appointment of a new CEO or a takeover threat. Abnormal long-run stock returns and operating performance are observed for spin-off firms only and mostly for internally grown business units and parent-related (non-focusing) subsidiaries. We find no evidence that post-spin-off mergers of either parents or subsidiaries enhance long-term performance or that focus-increasing spin-offs lead to efficiency improvements.