Kathleen Weiss Hanley

The Underpricing of Initial Public Offerings and the Partial Adjustment Phenomenon

This paper documents that the relation of the final offer price to the range of anticipated offer prices disclosed in the preliminary prospectus is a good predictor of initial returns. Issues that have final offer prices which exceed the limits of the offer range have greater underpricing than all other initial public offerings, and are also more likely to increase the number of shares issued. These results are consistent with the pricing and allocation schedule proposed by Benveniste and Spindt (1989), in which shares in an offering are rationed and prices only partially adjust to new information.

Evidence on the Strategic Allocation of Initial Public Offerings

The evidence reported in this paper suggests that institutional investors capture a large fraction of the short-run profits associated with IPOs. The favored status enjoyed by institutional investors in underpriced offerings appears, however, to carry a quid pro quo expectation that they will participate in less-attractive issues as well. This finding conforms with the Benveniste and Spindt (1989) and Benveniste and Wilhelm (1990) prediction that U.S. underwriters behave strategically in the allocation of IPOs.

Price Stabilization in the Market for New Issues

This study examines price stabilization in new equity issues. Stabilizationtruncates the distribution of post-issue prices at a floor price, lowering the risk of adverse price moves and hence, in a competitive dealer market, reducing the bid-ask spread. Using 1,523 NASDAO-traded firm-commitment initial public offerings issued between 1982 and 1987, we find that spreads narrow when the market price is close to the offer price and stabilization is most likely. Moreover, significant negative returns are documented after the hypothesized termination of stabilizing activities, suggesting that stabilization, and its cessation, affect market prices.

Going Public Abroad

We examine the decision of a firm to go public abroad and list securities outside their country of origin. Foreign IPO issuers are more likely to choose a global underwriter but only if the home country is less financially integrated. We find that the probability of conducting a foreign IPO is higher if the home country has a less developed stock market, its disclosure regime is weaker and is less financially integrated. Using a matched sample, we show that foreign IPOs raise more capital than their domestic counterparts. Finally, the determinants of the choice of a US listing are unique. Our results suggest that the rise of global underwriters facilitates the movement of capital across nations and contributes to world financial globalization.

The JOBS Act and the Costs of Going Public

We examine the effects of Title I of the Jumpstart Our Business Startups Act for a sample of 312 emerging growth companies (EGCs) that filed for an initial public offering (IPO) from April 5, 2012 through April 30, 2015. We find no reduction in the direct costs of issuance, accounting, legal, or underwriting fees for EGC IPOs. Underpricing, an indirect cost of issuance that increases an issuers cost of capital, is significantly higher for EGCs compared to other IPOs. More importantly, greater underpricing is present only for larger firms that are newly eligible for scaled disclosure under the Act. Overall, we find little evidence that the Act in its first three years has reduced the measurable costs of going public. Although there are benefits of the Act that issuers appear to value, they should be balanced against the higher costs of capital that can occur after its enactment.

Portfolio Similarity and Asset Liquidation in the Insurance Industry

Insurance companies have been designated as Systemically Important Financial Institutions (SIFI) based upon the presumption that large insurers have similar portfolios and this similarity has the potential to affect the asset liquidation channel of systemic risk transmission. Analyzing a comprehensive dataset of both public and private insurance companies from 2002 to 2014, we construct a portfolio similarity measure using cosine similarity. We show that greater portfolio similarity between two insurers is significantly related to the similarity in insurers’ asset liquidation decisions and this relationship is only marginally related to whether or not insurer pairs are capital constrained. Potential SIFIs (insurers with

Dynamic Interpretation of Emerging Systemic Risks

50 billion or more in consolidated assets), but not other insurers, with greater portfolio similarity of illiquid and downgraded securities have greater sales similarity during the financial crisis. This relationship remains strong even during the post-crisis period, providing support for the basis of their designation as systemically important. Our portfolio similarity measure provides information on the potential selling behavior of insurers over and above size and total sales. This work provides an implementable mechanism to identify and monitor the interconnectedness of insurer portfolios, thus helping regulators to identify asset liquidation channel vulnerabilities.

The Economics of Primary Markets

We use computational linguistics to develop a dynamic, interpretable methodology that can detect emerging risks in the financial sector. Our model can predict heightened risk exposures as early as mid-2005, well in advance of the 2008 financial crisis. Risks related to real estate, prepayment, and commercial paper are elevated. Individual bank exposure strongly predicts returns, bank failures, and return volatility. We also document a rise in market instability since 2014 related to sources of funding and mergers and acquisitions. Overall, our model predicts the buildup of emerging risk in the financial system and bank-specific exposures in a timely fashion.Received March 1, 2018; editorial decision November 18, 2018 by Editor Itay Goldstein.

What Does it Take to List Abroad? The Role of Global Underwriters

This paper provides an overview of the economics of primary markets to be used in the development of a new Special Study on securities markets. The topics include initial public offerings, follow-ons, and exempt securities issuance. In addition, reasons for the prolonged decline in IPOs are explored. Many of the issues raised in the 1963 Special Study are salient today. The rise of unregistered offerings as well as high underpricing and conflicts of interest in IPOs are all concerns mentioned in the original report. Given the longevity of these issues, researchers should address whether the offering process can be improved or whether the current environment adequately balances the needs of issuers with those of investors and investment bankers.

Strategic Reporting of Fair Value Estimate Levels

This paper examines which firms benefit the most from going public abroad and how a robust IPO market affects the trend toward greater globalization of capital. We show that the decision to do an IPO outside the home country is affected not only by the home countrys market characteristics but also the extent to which it is financially integrated with the world economy. In addition, we provide evidence that the decisions of whether to go public abroad, where to list, and the amount of proceeds raised are determined by the presence of global underwriters. Our results suggest that the rise of global underwriters facilitates the movement of capital across nations and is one of the channels by which world globalization can affect the IPO process.