To resolve the IPO underpricing puzzle it is essential to analyze who knows what when during the issuing process. In Germany, broker-dealers make a market in IPOs that starts as soon as the offer range is published. We examine these pre-IPO prices and find that they are highly informative. They are closer to the first price subsequently established on the exchange than both the midpoint of the offer range and the offer price. The pre-IPO prices explain a large part of the underpricing left unexplained by other variables. The results imply that information asymmetries are much lower than the observed variance of underpricing suggests. They cast doubt on the informational role of bookbuilding and the relevance of the winner's curse problem.

This study examines online multi-unit, discriminatory, ascending auctions of certificates of deposit. We find evidence suggesting that the most aggressive bids are likely to occur at the beginning and the end of the auctions. The opening of the auction serves an important role in price discovery. In addition, in multi-unit auctions last-minute bidding is a conditional strategy, and is used only when bidding is intense. Furthermore, we provide evidence suggesting that revenues are increasing in the depth of the market, in the concentration of early bids, and in bank participation relative to the size of the principal.

This paper tests a generalized version of the investor clientele hypothesis of Amihud and Mendelson [J. Finan. Econ. 17 (1986) 223]. This international trade-venue clientele effect hypothesis is supported for the Canadian cross-listed firms undifferentiated and differentiated by US trade venue, except for TSE shares cross-listed on NASDAQ. The hypothesized relationship between relative holding periods (measured using shares outstanding and share float) and effective half-spreads changes after TSE decimalization, and differs if the cross-listed shares have options traded on them. The empirical findings suggest that the TSE lost (won) executed order flow relative to the AMEX and to NYSE for shares with (without) options traded on them

This paper shows how informed financial intermediaries can reduce their trading competition by designing optimal incentive compatible contracts for the sale of information. With fund management contracts—indirect sale of information—banks can credibly commit to collaborate and add noise into prices. This is a way to circumvent the Grossman and Stiglitz (1980) paradox: when information is costly, by committing to add noise, the banks can recover the cost of collecting information and enter the market. By contrast, when information is costless, even with a large number of sellers of information entering the market prices are not fully informative

We study mechanisms by which the provision of incentives to new entrants is influenced by lenders' financial interests in incumbents. When a financier has a strong interest in protecting incumbent rents, he stifles the entrant's internal efficiency with a highly dilutive claim, and bribes her for not accessing more aggressive finance elsewhere. By contrast, when the financier's protective interest in the incumbent is less strong, then it can spur the destruction of incumbent rents. This is because it strengthens the financier's commitment to penalize the entrant for managerial slack by forcing her into market exit, which sharpens her internal efficiency and competitiveness. While the corresponding decrease in incumbent firm value is partially internalized by the financier, he is more than compensated by the incremental firm value of the entrant, part or all of which accrues to him. The model has implications for the competitive effects of industry-focused lending styles.

We analyze the impact of takeover threats on long-term relationships between the target owners and other stakeholders. In the absence of takeovers, stakeholders' bargaining power increases their incentive to invest but reduces the owners' incentive to invest. The threat of a takeover that would transfer value from the stakeholders reduces their ex ante investment. However, the stakeholders may appropriate ex post some value created by a takeover. This can prevent some value-enhancing takeovers. We examine extensions to the disciplinary role of takeovers, takeover defense mechanisms, and trade credit, and discuss empirical predictions.