Nikhil P. Varaiya

Anne Evans: Assessment of a Biotechnology Market Opportunity

This case describes Anne Evans’ search for a market opportunity in the biotechnology industry, and examines the feasibility of establishing a new venture to exploit this opportunity. The drug development process in the biopharmaceutical industry spans three critical phases: pharmaceutical discovery, pharmaceutical development, and product marketing. The drug development process is a very capital–intensive process with expenditures averaging

Assessing the profitability of growth by acquisition: A ‘premium recapture’ approach

800 million per drug and with very high failure rates—only one out of 5,000 compounds that emerge from discovery and preclinical testing will make it into the market. The drug development process therefore contributes to very high cash burn rates and corporate failures in the biotechnology industry.

Assessing the Resolution of Insolvent Thrift Institutions post FIRREA: The Impact of Resolution Delays

Abstract This paper makes a case that because of the large premiums paid over the last 20 years by companies undertaking growth by acquisition, this growth probably has been unprofitable. The case has three parts. The first develops a model designed to show for any premium paid for any acquiree the performance improvement required to recapture this premium and create value for the acquiring company. The second part reports the distribution of premiums paid for a large sample of acquirees and uses this model to determine the specific performance improvements necessary to bring about value creation for the new parents of the acquirees. The third part uses historical rate of return data to show that for typical acquirees these improvements call for levels of performance that are difficult to attain and sustain in U.S. industrial markets.

Opportunity Costs Incurred by the RTC in Cleaning Up S&L Insolvencies

The Resolution Trust Corporation (RTC) was created by FIRREA in 1989 to manage and dispose of troubled thrifts in a manner that would minimize resolution costs. In this study, we focus on the transition of troubled thrifts from conservatorship into resolution via sales in RTC auctions. We examine the determinants of bidder participation, observed premiums, and RTC estimates of resolution costs, including the impact of resolution delays in RTC-insured-deposit-transfer and purchase-and-assumption auctions from August 1989 to November 1991. Our analysis indicates that resolution delays were associated with lower premiums and higher resolution costs. These associations are found to be economically and statistically significant and result from both the deterioration in franchise value and the deterioration in asset value while being held in conservatorship.

Bookbuilding versus Auction Selling Methods: A Study of US IPOs

This paper draws attention to an important but neglected component of the costs of the thrift cleanup as reported by the Resolution Trust Corporation (RTC). The RTC resolved 747 thrift institutions over the period 1989-1995 at an estimated cost of

Impact of Macroeconomic Factors on Cash Holdings?: A Dynamic Panel Model:

90.1 billion. Since the RTCs loss exposure indirectly represented a taxpayer-funded equity position in troubled thrifts, the associated opportunity costs constitute significant costs that are in addition to the reported resolution costs. Recognition of this important category of costs raises the taxpayer burden from the official estimate of

Michel Kripalani and Oceanhouse Media: Journey of a Serial Entrepreneur

90.1 billion to a cost of between

Corporate Governance and Firm’s Cash Holdings: Evidence From India

112 and

Open Market Repurchase Regulations: A Cross-Country Examination

146 billion. Budgetary recognition of these implicit expenses would have had to affect the operations of the RTC and Congressional decisions to fund RTC activities.

IPO Pricing, Block Sales, and Long Term Performance

Abstract This study documents differences between two widely known IPO selling methods: the auction method and bookbuilding method for a sample of US IPOs. We employ a matched firm technique to compare the two IPO selling methods and empirically test hypotheses relating to the two selling methods. Our sample comprises all auction IPOs in the US between January 1999 and December 2004. Our results indicate that in comparison to matched bookbuilding IPOs, auction IPOs are less underpriced and thus leave less money on the table for the issuers, and have lower underwriter spreads. Relative to auction IPOs, bookbuilding IPOs are more likely to be followed and positively recommended by analysts and they receive more coverage by lead analysts, i.e. analysts affiliated with lead underwriters. Moreover, bookbuilding IPOs tend to outperform auction IPOs up to 18 months post-IPO, exhibit lower aftermarket volatility, and insiders of auction IPOs agree to lock up a higher fraction of their shares and hold them for a longer period of time.