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0:00
Hello, this is Jack Cooney
from Texas Tech University.
I'm going to talk about
initial public offerings.
0:08
As I say here, the initial
public offering of common stock
is probably the most
important capital
raising event for a corporation.
It's typically a very
large offering with respect
to the outstanding
shares of the company.
There's a lot of valuation
uncertainty, obviously,
with respect to the
initial public offering.
This stock has not been
publicly traded before,
so we don't know what it's worth.
So the investment bank
that takes it public
has to gather information
from the issuing firm
and from purchasing
investors to try to determine
their appropriate offer price.
The company obviously gains
access to the public markets
for the first time, so they can
now start issuing common stock
to the public through regular stock
offerings, season stock offerings.
And then also there are
now reporting requirements.
They have to start filing
their financial statements.
This provides information
to potential investors that
are interested in
purchasing this stock,
but it also provides information
to competitors of the issuing firm
and takes away maybe
some of the advantages
the firm might have
as a private firm.
So firms often have to decide,
do I want to become a public firm
and gain access to
the public markets
and offset that with respect
to the reporting requirements
and providing information
to competitors.
1:26
So let me give a
quick outline of what
the lecture is going to look like.
What I'm going to start off with is
an overview of the US IPO market,
a bunch of facts about the market.
I've drawn this from
Jay Ritter's website,
who has an excellent
summary of the IPO market
here in the United States.
I'm going to do an example
of a recent IPO, basically
the Twitter IPO.
I'm going to pull several
aspects of the Twitter IPO
and show you some of the
items I'm going to be
talking about later in the lecture.
As far as my main
topics for the lecture,
I'm going to be talking
primarily about underpricing.
I'm going to start
with the rock model,
which is a winner's curse model.
Then I'm going to talk about
investment bank certification,
venture capital certification,
and then this partial adjustment
phenomenon or partial
adjustment effect,
which is a major determinant of the
amount of underpricing for an IPO.
I'm then going to talk about three
different market imperfections that
impede price discovery
in the IPO market,
in particular price stabilization
or price support, the quiet period,
and the lockup period.
And then I'm going
to talk about just
briefly at the end of the lecture
several other topics, analyst
conflicts of interests, this
changing incentives of issuers
and investment banks
that we've seen lately,
fees or growth spreads
paid to the underwriter,
the informational content
of the prospectus, how
that might vary from
prospectus to prospectus,
competitive effects of IPOs.
How does an IPO affect
competitor firms?
And then long-run returns.
So that's what I'm
going to be doing.
