Riccardo Ferretti

Underpricing, Wealth Loss for Pre-Existing Shareholders and the Cost of Going Public: The Role of Private Equity Backing in Italian IPOs

This study analyses the role of private equity investors in solving asymmetric information problems and the relationship to underpricing, wealth loss for pre-existing shareholders and the cost of going public. According to certification theory, companies backed by private equity investors are expected to have lower underpricing at the moment of an initial public offering, as they have fewer adverse selection problems, and there is less ex-ante uncertainty. However, the relationship between private equity backing and the cost of going public to issuers is less clear. We use a dataset of 66 private equity-backed and 94 non-private equity-backed companies that went public on the Milan Stock Exchange between January 1998 and June 2008. Our findings provide evidence that out of the PE-backed firms, only those backed by private equity syndication show lower initial-day returns and indirect issuance opportunity cost, while there is no difference in the certification role between bank-related and non bank-related private equity investors. We also find that the benefits persist for IPOs backed by private equity syndication, although to a lesser extent, even after adjusting for direct costs (gross spreads) the opportunity cost of issuance.

The Business Model of Banks: A Review of the Theoretical and Empirical Literature

The business model (BM) has become a key concept in banking literature. The topic’s relevance is due to the impact of the crisis on bank profitability and risk levels, leading to new challenges for bank managers, analysts and regulators. The paper draws on the strategic management studies to deepen and specify the concept of corporate strategy, business strategy and business model. This theoretical frameworg guides our review of banking business model literature.

Market Reaction to Second-Hand News: Inside the Attention Grabbing Hypothesis

This paper deals with a long-standing issue in finance: whether the market reaction to second-hand information is caused by price pressure or by dissemination. We use the perspective of attention grabbing as a particular form of price pressure to analyze the market reaction to the dissemination of analysts’ recommendations through the press. This perspective allows the prediction of an asymmetric market reaction to “buy” and “sell” advice, which has previously been detected in a few other empirical studies but is otherwise difficult to rationalize within the standard price pressure hypothesis. In particular, we analyze the content of a weekly column in the most important Italian financial newspaper that presents past information and analysts’ recommendations on listed companies. In doing so, we find an asymmetric price and volume reaction. Contrary to previous evidence, we document a positive relation between the number of analysts quoted in the column and the price (volume) increase associated with positive recommendations. Because the weekly columns simply attract the attention of investors with no additional new information, it is natural to observe a greater reaction for the most “glamorous” stocks (i.e., the stocks most commonly followed by analysts).This paper investigates whether the market reaction to second-hand information is due to price pressure or information dissemination. We use the perspective of attention grabbing to analyze the market reaction to the dissemination of analysts’ recommendations published in print media. This perspective is able to explain the asymmetric market reaction to “buy�? and “sell�? advice, which is difficult to rationalize within the price pressure hypothesis. We base our empirical analysis on the content of a weekly column in the most important Italian financial newspaper which publishes past information and analysts’ recommendations on listed companies. Our findings show asymmetric price and volume reactions on the publication day. Contrary to previous evidence, we document a positive relationship between the number of analysts quoted in the column and the price (volume) increase associated with positive recommendations. Because the weekly columns seem to simply attract investors’ attention, with no additional new information, observing a reaction positively related to the column’s salience (proxied by the number of quoted analysts) is natural. In addition, we find that the market reaction is higher when the order size is lower, i.e., when individual investors’ trades constitute a higher fraction of the total trading activity in the market.

Book and Market Values of European Banks: Country, Size, and Business Mix Effects

In the years since the outbreak of the crisis, the financial markets have persistently reduced the market value of European banks as a consequence of macroeconomic, regulatory, and structural factors. Even though these factors have affected the European banking industry as a whole, the market valuation of banks have shown differences across country, size, and business mix profiles. In line with the existing literature on bank market valuation, this study tests for the difference between the market-to-book ratios of the large European banks using a variety of indicators typically affecting bank market value. To verify our research questions, we first regress the market-to-book ratio over performance measures, risk indicators, and growth patterns. Then, in a second step, we test whether bank business or country characteristics affect bank market valuation. Our panel consists of all large publicly traded bank holding companies at the European level. Large publicly traded banks comprise all listed banks with consolidated assets exceeding € 50 billion in 2015. The results highlight the relevance of the country context for the consequences on bank performance and stability.

Can an unglamorous non-event affect prices? The role of newspapers

Abstract Our paper offers evidence that the print media can affect stock prices by covering public information. After price-to-book value figures of Italian listed shares were first published on the major national financial newspaper, the prices of value stocks did, on average, show a positive reaction. The price reaction was limited to small caps stocks and disappeared within three weeks. Over the period of analysis, we could not find any abnormal behaviour of the returns of small and value stocks on other European markets. These findings support the view that newspapers play a role in disseminating information to small investors and grabbing their attention, even if news are continuously realeased by faster and more sophisticated media.

M&As and Equity Risk in the EMU Financial Sector

Over the past decade mergers and acquisitions (M&As) in the financial sector have been very frequent. In Europe the pace of M&As has been rapid. This process has been driven by the consolidation of market-oriented policies in the EU member countries, as well as by the expansion of the common market environment and the introduction of the euro since 1999. The opening of new markets in former Communist countries has also played a prominent role.