The price of rapid exit in venture capital-backed IPOs

This paper proposes an explanation for two empirical puzzles surrounding initial public offerings (IPOs). Firstly, it is well documented that IPO underpricing increases during “hot issue” periods. Secondly, venture capital (VC) backed IPOs are less underpriced than non-venture capital backed IPOs during normal periods of activity, but the reverse is true during hot issue periods: VC backed IPOs are more underpriced than non-VC backed ones. This paper shows that when IPOs are driven by the initial investor’s desire to exit from an existing investment in order to finance a new venture, both the value of the new venture and the value of the existing firm to be sold in the IPO drive the investor’s choice of price and fraction of shares sold in the IPO. When this is the case, the availability of attractive new ventures increases equilibrium underpricing, which is what we observe during hot issue periods. Moreover, I show that underpricing is affected by the severity of the moral hazard problem between an investor and the firm’s manager. In the presence of a moral hazard problem the degree of equilibrium underpricing is more sensitive to changes in the value of the new venture. This can explain why venture capitalists, who often finance firms with more severe moral hazard problems, underprice IPOs less in normal periods, but underprice more strongly during hot issue periods. Further empirical implications relating the fraction of shares sold and the degree of underpricing are presented

Transparency and Liquidity: A Controlled Experiment on Corporate Bonds.

Abstract This paper reports the results of an experiment designed to assess the impact of last-sale trade reporting on the liquidity of BBB corporate bonds. Overall, adding transparency has either a neutral or positive effect on liquidity. Increased transparency is not associated with greater trading volume. Except for very large trades, spreads on newly-transparent bonds decline relative to bonds that experience no transparency change. However, we find no effect on spreads for very infrequently traded bonds. The observed decrease in transactions costs is consistent with investors' ability to negotiate better terms of trade once they have access to broader bond pricing data

CORPORATE GOVERNANCE AND INVESTORS' PERCEPTIONS OF FOREIGN IPO VALUE: AN INSTITUTIONAL PERSPECTIVE

We build on sociology-grounded research on financial market behavior and suggest a “nested” legitimacy framework to explore U.S. investor perceptions of foreign IPO value. We draw on a fuzzy-set theoretic approach to demonstrate how different combinations of monitoring and incentive-based corporate governance mechanisms lead to the same level of investor valuations of firms. We also argue that institutional factors related to the minority shareholder protection strength in the foreign IPO’s home country represent a boundary condition that affects the number of governance mechanisms required to achieve U.S. investors’ high value perceptions. Our findings, drawn from a unique, hand-collected dataset of foreign IPOs in the U.S, contribute to the sociological perspective on comparative corporate governance and the inter-dependencies between organizations and institutions

Executive cash compensation and tax aggressiveness of Chinese firms

We examine the influence of corporate compensation policies on firms’ tax aggressiveness in an emerging market where executive compensation is primarily in cash form. Based on a hand-collected dataset of 958 firm-year observations of Chinese listed firms for the 2006-2012 period, we find that firms paying higher executive cash compensation are associated with lower tax aggressiveness. This relationship also holds for the excess cash compensation measures which control for executive shareholding, firm profitability, size, growth opportunity, and board independence. We further document that mutual funds ownership pressure firms paying higher compensation to reduce their tax aggressiveness, suggesting adverse selection by mutual funds on firms exhibiting risky tax avoidance activities. High leverage offsets the negative link between cash compensation and tax aggressiveness, indicating a complementary effect between debt and tax avoidance, and, hence, suggesting that creditor monitoring is weak. These results are robust to the system-GMM estimation, which simultaneously account for the endogeneity of executive compensation, tax aggressiveness, ownership and control, leverage, and corporate governance. Our findings on Chinese firms have important policy implications for developing countries around the world with concentrated ownership structure, weak institutional environment, widespread corruption, ineffective rule of law, and ongoing significant social and political transformation

Institutional investors and corporate governance

We provide a comprehensive overview of the role of institutional investors in corporate governance with three main components. First, we establish new stylized facts documenting the evolution and importance of institutional ownership. Second, we provide a detailed characterization of key aspects of the legal and regulatory setting within which institutional investors govern portfolio firms. Third, we synthesize the evolving response of the recent theoretical and empirical academic literature in finance to the emergence of institutional investors in corporate governance. We highlight how the defining aspect of institutional investors – the fact that they are financial intermediaries – differentiates them in their governance role from standard principal blockholders. Further, not all institutional investors are identical, and we pay close attention to heterogeneity amongst institutional investors as blockholders

A survey of shipping finance research: setting the future research agenda

Financing shipping related investment projects has always been a focal area of debate and research within the international maritime industry since access to funding can determine the competitiveness of a capital-intensive business as well as its success or failure under adverse market conditions. This paper provides, for the first time, a comprehensive and structured survey of all published research in the area of shipping finance and investment. The review spans approximately four decades (1979-2018) of empirical evidence, including 162 studies published in 48 scholarly journals, complemented with select books and book chapters. The study provides a bibliometric analysis and comprehensive synthesis of existing research offering an invaluable source of information for both the academic community and business practice, shaping the future research agenda in shipping finance and investment