There is a general perception that the large trading volume in initial public offerings is mostly due to “flippers” that are allocated shares in the offering and immediately resell them. On average, however, flipping accounts for only 19% of trading volume and 15% of shares offered during the first two days of trading. Institutions do more flipping than retail customers and hot IPOs are flipped much more than cold IPOs. Institutions do not quickly flip cold IPOs to take advantage of price support activities by the underwriter. Explicit penalty bids are rarely assessed against flippers.

Prior research has assumed that underwriters post a stabilizing bid in the aftermarket. We find instead that aftermarket activities are less transparent and include stimulating demand through short covering and restricting supply by penalizing the flipping of shares. In more than half of IPOs, a short position of an average 10.75 percent of shares offered is covered in 22 transactions over 16.6 days in the aftermarket, resulting in a loss of 3.61 percent of underwriting fees. Underwriters manage price support activities by using a combination of aftermarket short covering, penalty bids, and the selective use of the overallotment option.

[We construct a firm-level governance index that increases with minority shareholder protection. Compared with U.S. matching firms, only 12.68% of foreign firms have a higher index. The value of foreign firms falls as their index decreases relative to the index of matching U.S. firms. Our results suggest that lower country-level investor protection and other country characteristics make it suboptimal for foreign firms to invest as much in governance as U.S. firms do. Overall, we find that minority shareholders benefit from governance improvements and do so partly at the expense of controlling shareholders.]

[We construct a firm-level governance index that increases with minority shareholder protection. Compared with U.S. matching firms, only 12.68% of foreign firms have a higher index. The value of foreign firms falls as their index decreases relative to the index of matching U.S. firms. Our results suggest that lower country-level investor protection and other country characteristics make it suboptimal for foreign firms to invest as much in governance as U.S. firms do. Overall, we find that minority shareholders benefit from governance improvements and do so partly at the expense of controlling shareholders.]

In 1992, the Amex launched the Emerging Company Marketplace (ECM) to trade the stocks of small but growing companies. Bid–ask spreads decreased dramatically for listing firms, and news coverage increased. Executives of listing firms were quite satisfied. Yet few firms chose to list on the ECM, and it closed in 1995. What went wrong? Most Amex stakeholders had little to gain from the success of the ECM, and a series of scandals damaged the reputation of the exchange. Similar small-firm markets have also failed, largely because successful firms quickly depart for traditional markets, leaving only unsuccessful firms behind.

We examine the price discovery process of initial public offerings (IPOs) using a unique dataset. The first quote entered by the lead underwriter in the five‐minute preopening window explains a large proportion of initial returns even for hot IPOs. Significant learning and price discovery continues to take place during these five minutes with hundreds of quotes being entered. The lead underwriter observes the quoting behavior of other market makers, particularly the wholesalers, and accordingly revises his own quotes. There is a strong positive relationship between initial returns and the time of day when trading starts in an IPO.

This study assesses the stock return performance of 131 firms emerging from Chapter 11. Using differing estimates of expected returns, we consistently find evidence of large, positive excess returns in 200 days of returns following emergence. We also examine the reaction of our sample firms' equity returns to their earnings announcements after emergence from Chapter 11. The positive and significant reactions suggest that our results are driven by the market's expectational errors, not mismeasurement of risk. The results provide an interesting contrast, but not a contradiction, to previous work that has documented poor operating performance for firms emerging from Chapter 11.

US corporations can raise capital in the offshore market using Regulation S, adopted by the Securities and Exchange Commission (SEC) in 1990 and modified in 1996. We examine how offshore offerings are done under Regulation S, what types of companies use this market, the discount companies offer investors to compensate for illiquidity in the market, and the impact of the new disclosure requirements on capital raising in the offshore market. We find that small firms tend to raise capital in this market. During our sample period before the 1996 rule change the median market capitalization of reporting firms was $16.82 million with a median stock price of $1.13. The mean and median discount offered to foreign investors was 32.84% and 40.53%, respectively. Offerings during this period resulted in average share dilution of 11.97%. We find that before the disclosure requirements, firms were “gaming the system” by giving foreign investors just enough time to resell the securities back into the United States before the initial sale became public information. After the rule changes, Regulation S offerings are not perceived to be “shady”, and larger firms are now using the market, resulting in lower average discount and dilution.

Abstract We examine the preopening process and price discovery from the offer price to the first open price in initial public offerings. The extent of price discovery during preopening is influenced by firm characteristics and preopening attributes, such as volume of shares executed in preopening, canceled orders, order imbalance, and changes in indicative price. Institutional investors cancel 4 orders for every executed order. Each phase of preopening contributes to incremental price discovery. In “hot” IPOs, almost all price discovery processes occur during preopening, whereas in “cold” IPOs, half of the price adjustment occurs after the market opens.