The capital structure of business start-ups: policy implications.

Management; Economy; Structure; Startups; Policy; Implications;

Share issuing privatizations in China: Determinants of public share allocation and underpricing.

Using data on 451 Chinese privatizations over the period 1994-2002, this paper empirically investigates the firm and stock market characteristics that determine the size of the portion of new shares sold to the general public and underpricing at SIP-time. We find that poor performance and financing constraints, reflected by a low profitability and high leverage, mainly drive public share allocation. Also, the government widens ownership to a larger extent in firms that receive substantial subsidies. By contrast, stock market returns pre-SIP and variables capturing the firmâ??s growth opportunities do not positively affect public share allocation. Yet, in firms with a low market-to-book ratio, the government is more likely to relinquish its majority stake at SIP-time. The determinants of underpricing further illustrate the uniqueness of SIPs compared to private-firm IPOs. Overall, there is little evidence that information asymmetries regarding firm value influence first-day returns whereas stock market conditions have an impact. After accounting for the endogeneity of the public share allocation decision, we find that the fraction of ownership divested is significantly positively related to underpricing.Accounting; Characteristics; Constraint; Data; Decision; Determinants; Firm value; Firms; Government divestment; Growth; Impact; Information; Market; Motives for going public; Opportunities; Ownership; Performance; Privatization; Profitability; Research; Size; Subsidies; Underpricing; Value; Variables;

Interdependencies between European, U.S. and Japanese stock markets: Did the Euro promote further integration?.

This paper investigates the co-movement of stock markets in some major economic regions. Specifically, we examine the long-run interdependencies and short-term dynamics between the European market on the one hand and the U.S. and Japanese stock markets on the other hand. The results show that strong interactions exist between these markets. A shock originating in one market induces a persistent effect of the same direction in the other market on the same day. This effect generally tapers off on the second day. We further demonstrate that the interrelationships of the European market are stronger with the U.S. than with Japan. Interestingly, these interdependencies became stronger after January 1, 1999, which suggests that the introduction of the Euro has reduced international diversification benefits.Diversification; Dynamics; Euro; Integration; International; Long-run; Market; Markets; Persistence; Regions; Research; Stock market integration; VAR modeling;

On the interactions between capital structure and product markets: A survey of the literature.

Capital structure; Structure; Product; Markets; Market;

Non-financial stakeholder relationship costs as determinant of capital structure: Empirical evidence from first-time business start-ups.

Titman (1984) is the first to argue that non-financial stakeholders (customers, suppliers and employees) pass on their expected liquidation costs to the firm. In his framework, firms can influence the probability of liquidation by choosing an appropriate capital structure. Other studies have reasoned that the bargaining power of non-financial stakeholders (NFS) may also impact on financing decisions. This paper investigates these ideas in a sample of first-time business start-ups, where ex-ante failure risk is high and NFS have to make relationship-specific investments. We find that the size of NFS liquidation costs significantly reduces leverage and the proportion of bank loans. These effects are strengthened when suppliers have strong bargaining power. Finally, start-ups reduce their reliance on bank loans when customers and suppliers are in a powerful bargaining position.Bargaining power; Capital structure; Liquidation costs; Non-financial stakeholders; Start-ups;

On the Interactions between Capital Structure and Product Markets.A Survey of the Literature

This paper surveys capital structure theories based on product characteristics and the structure of input and output markets. In this manner, it extends the work of Harris and Raviv (1991). Simultaneously, we relate capital structure to decisions in the input and output markets, such as production and pricing, investments, and entry and exit. We briefly discuss each of the central papers in these literatures and relate them to the other models. Next, we present the known empirical evidence that either supports or rejects these models. Finally, we offer our conclusions and elaborate on this review article’s implications for future research.

Structuring the IPO: Empirical evidence on the primary and secondary portion.

We empirically study the determinants of the size of the primary and secondary portion in IPOs. Simultaneously, the results provide additional information on the motives for going public. The data show that financing needs underlie the primary portion. Firms use combined offerings to enhance market liquidity, whereby information gathering by institutional investors is stimulated. Pre-allocation and post-IPO data on market liquidity and seasoned equity offerings support these findings. Somewhat surprisingly, the diversification motive does not seem to drive the size of the secondary portion; however, secondary offerings show relatively higher control turnover post-IPO.Data; Firms; Information; Market; Size; Studies;

The Role of Institutional Investors in Corporate Finance

This paper argues that institutional investors may have a positive effect on stock prices. This effect realizes through different mechanisms: institutional investors reduce information asymmetries between firms and (other) investors, contribute to the liquidity of the company’s stock and improve its corporate governance. We conjecture that firms, understanding the benefits of having institutional investors in their ownership, may do efforts to attract them. We apply this idea in the context of IPOs. Using data on Belgian IPOs over the period 1984-2000, we find that firms using the stock market as a financing vehicle and firms less likely to be monitored by corporate blockholders are more likely to pre-allocate shares to institutional investors at IPO-time. Finally, pre-allocating shares to institutional investors is shown to reduce underpricing and enhance post-IPO liquidity.