Susan Chaplinsky

The Impact of Global Equity Offerings

This article examines the impact of U.S. firms issuing equity in multiple markets. We compare the stock price reactions to announcements of global equity offers to a control group of issues offered exclusively in the domestic U.S. market. All else equal, the adverse price reaction that typically accompanies equity issuance is reduced by 0.8 percent when some shares are sold abroad. The overall evidence suggests global offers are effective in expanding demand and reducing the price pressure effects associated with share issuance. The beneits of global offers appear to be associated with an increase in the number of foreign shareholders. Copyright The American Finance Association 2000.

The Tax and Distributional Effects of Leveraged ESOPs

M In recent years, the number of publicly held firms sponsoring leveraged Employee Stock Ownership Plans (ESOPs) has grown significantly. Currently, more than 9,000 firms have ESOPs and over 9 million employees receive part of their compensation through ESOPS (see the National Center for Employee Ownership). Several factors are often advanced to explain leveraged ESOP adoptions, including their value in (i) providing tax benefits, (ii) increasing employee productivity, and (iii) defending against hostile takeovers. While each of these factors is a potential source of shareholder value, little evidence currently exists to show whether shareholders in ESOP firms realize any of these purported benefits. (For further discussion of the motivations for ESOP adoption, see Bruner [1], Chen and Kensinger [3], Scholes and Wolfson [6], and Chaplinsky and Niehaus [2].) Two important issues affect the ability of shareholders to benefit from ESOPs: (i) the corporate tax benefits from a leveraged ESOP and (ii) the effect of an ESOP on the distribution of cash flows between

Dividends and Taxes: Evidence on Tax-Reduction Strategies

This article investigates two aspects of dividend tax avoidance not addressed by prior research. First, it examines the aggregate dividend tax savings provided to individuals through tax-exempt and tax-deferred accumulators. Using the Internal Revenue Service Individual Income Tax Model, it then proceeds to determine whether specific provisions of the Internal Revenue Code, such as the preferential treatment of capital gains, the investment-interest limitation, and the

The JOBS Act and the Costs of Going Public

100 dividend exclusion, affect the individuals choice of investment income. Finally, it provides a direct estimate of the average marginal tax rate on dividends that takes into account tax-favored accumulators. Copyright 1990 by the University of Chicago.

The Decline in Venture-Backed IPOs: Implications for Capital Recovery

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.

Vipe Financing: Venture (Capital) Investments in Public Equity

The decline in initial public offerings (IPOs) has raised concerns about the vitality of the venture capital industry. We examine capital recovery in the VC industry using returns for 1,215 M&A and 1,401 IPO exits from U.S. based venture-backed companies during 1985 to 2008. We find that mean and median returns for IPO exits are significantly higher than M&A exits, with the median M&A exit having a negative return. A decomposition of returns into its fundamental components − investor stakes, capital allocated to portfolio companies (money-in), and capital recovered from portfolio companies (money-out) − shows that returns are five times more sensitive to money-in than money-out, with more disciplined capital allocation being especially important for generating high M&A returns. In all market conditions, IPOs have average exit returns in excess of 125% whereas M&A returns are lower and exhibit more variation. Taken together, the results suggest that it is more difficult to achieve outsized returns from M&A than IPO exits. For the industry as a whole, the dollars realized from M&A exits do not keep pace with their growth as a proportion of total exits over time. Increasing numbers of exits must be produced to recover the total capital at risk, suggesting that industry concerns about a decline in IPO exits and their likely higher capital recovery are well-founded.

Investment Risk Allocation and the Venture Capital Exit Market

This paper studies 1,655 venture investments in public equity (“VIPEs”) over 1995-2008. Although it has been conjectured that venture capital firms (VCs) have increased investments in public equity over time, we find little evidence to support this claim as VIPEs represent less than 2 percent of total VC investment in most years. VCs appear to invest in VIPEs to leverage their experience and to capitalize on perceived undervaluation of the issuer’s equity shares. Consistent with this, VIPEs are highly concentrated in a few industries and VCs purchase stakes at a price 47 percent below the issuer’s previous year’s high price. We do not, however, find evidence that the experience VCs gain from investing in private companies results in an ability to consistently identify undervalued public companies.

Is There a Window of Opportunity for Seasoned Equity Issuance

The factors that drive the financing available to start-ups is a key issue for entrepreneurs, venture capitalists (VCs), and other investors in new ventures, especially in light of the difficult exit market the industry has faced over the last decade. We examine how the dollars gained and lost in recent exits and failures of venture-backed companies affect VCs’ risk allocations (proportion of early- versus late-stage investment) and returns over 1986-2008. Consistent with perceptions of lower profit-to-loss potential for risky investments, we find that VCs have significantly decreased the proportion of early stage investment over time. Conditional on exit, lower risk allocations at the time of investment initiation reduce the future returns from these exits, with its impact seemingly large enough to offset the positive effects of industry downsizing since 2001. In sum, we show empirically that risk allocation is an important channel by which VCs respond to market signals.