Journal Article Managerial Compensation and the Market Reaction to Bank Loans Get access Andres Almazan, Andres Almazan University of Texas Address correspondence to Andres Almazan, Department of Finance, McCombs School of Business, University of Texas at Austin, TX 78712-1179, or e-mail: [email protected]. Search for other works by this author on: Oxford Academic Google Scholar Javier Suarez Javier Suarez CEMFI Search for other works by this author on: Oxford Academic Google Scholar The Review of Financial Studies, Volume 16, Issue 1, January 2003, Pages 237–261, https://doi.org/10.1093/rfs/16.1.0237 Published: 16 June 2015

In a sample of 2,794 initial public offerings (IPOs), we test three potential explanations for the existence of IPO lockups: lockups serve as (i) a signal of firm quality, (ii) a commitment device to alleviate moral hazard problems, or (iii) a mechanism for underwriters to extract additional compensation from the issuing firm. Our results support the commitment hypothesis. Insiders of firms that are associated with greater potential for moral hazard lockup their shares for a longer period of time. Insiders of firms that have experienced larger excess returns, are backed by venture capitalists, or go public with high-quality underwriters are more likely to be released from the lockup restrictions.

I test the hypothesis that short debt maturity attenuates the negative effect of growth opportunities on leverage. Using simultaneous equations with leverage and maturity endogenous, I find strong support for an economically significant attenuation effect. The negative effect of growth opportunities on leverage for firms with all shorter-term debt is less than one-sixth as large as the effect for firms with all longer-term debt. Short maturity also increases liquidity risk, however, which negatively affects leverage. The results suggest that firms trade off the cost of underinvestment problems against the cost of liquidity risk when choosing short maturity.

In a sample of 2,794 initial public offerings (IPOs), we test three potential explanations for the existence of IPO lockups: lockups serve as (i) a signal of firm quality, (ii) a commitment device to alleviate moral hazard problems, or (iii) a mechanism for underwriters to extract additional compensation from the issuing firm. Our results support the commitment hypothesis. Insiders of firms that are associated with greater potential for moral hazard lockup their shares for a longer period of time. Insiders of firms that have experienced larger excess returns, are backed by venture capitalists, or go public with high-quality underwriters are more likely to be released from the lockup restrictions.

We present a detailed view of market quality in the presence of preferencing arrangements. A unique dataset provides the opportunity to measure trading costs of marketable orders and fill rates and ex post costs of limit orders across trading venues. For market orders, we find the primary exchange provides the lowest execution costs. However, the preferencing exchanges are no worse than, and in most cases better than, the nonpreferencing regional exchanges. For limit orders, the regionals execute limit orders more frequently than the primary market and with an ex post execution cost that is not very different from the primary market.

We present a microstructure model of competition for order flow between exchanges based on liquidity provision. We find that neither a pure limit order market (PLM) nor a hybrid specialist/limit order market (HM) structure is competition-proof. A PLM can always be supported in equilibrium as the dominant market (i.e., where the hybrid limit book is empty), but an HM can also be supported, for some market parameterizations, as the dominant market. We also show the possible coexistence of competing markets. Order preferencing—that is, decisions about where orders are routed when investors are indifferent—is a key determinant of market viability. Welfare comparisons show that competition between exchanges can increase as well as reduce the cost of liquidity.

We present a microstructure model of competition for order flow between exchanges based on liquidity provision. We find that neither a pure limit order market (PLM) nor a hybrid specialist/limit order market (HM) structure is competition-proof. A PLM can always be supported in equilibrium as the dominant market (i.e., where the hybrid limit book is empty), but an HM can also be supported, for some market parameterizations, as the dominant market. We also show the possible coexistence of competing markets. Order preferencing—that is, decisions about where orders are routed when investors are indifferent—is a key determinant of market viability. Welfare comparisons show that competition between exchanges can increase as well as reduce the cost of liquidity.

Journal Article Global Integration in Primary Equity Markets: The Role of U.S. Banks and U.S. Investors Get access Alexander P. Ljungqvist, Alexander P. Ljungqvist New York University and CEPR Address correspondence to Alexander Ljungqvist, New York University, Stern School of Business, 44 West Fourth Street, #9-190, New York, NY 10012-1126, or e-mail: [email protected]. Search for other works by this author on: Oxford Academic Google Scholar Tim Jenkinson, Tim Jenkinson Oxford University and CEPR Search for other works by this author on: Oxford Academic Google Scholar William J. Wilhelm, Jr. William J. Wilhelm, Jr. Oxford University Search for other works by this author on: Oxford Academic Google Scholar The Review of Financial Studies, Volume 16, Issue 1, January 2003, Pages 63–99, https://doi.org/10.1093/rfs/16.1.0063 Published: 16 June 2015

I test the hypothesis that short debt maturity attenuates the negative effect of growth opportunities on leverage. Using simultaneous equations with leverage and maturity endogenous, I find strong support for an economically significant attenuation effect. The negative effect of growth opportunities on leverage for firms with all shorter-term debt is less than one-sixth as large as the effect for firms with all longer-term debt. Short maturity also increases liquidity risk, however, which negatively affects leverage. The results suggest that firms trade off the cost of underinvestment problems against the cost of liquidity risk when choosing short maturity.

In a sample of 2,794 initial public offerings (IPOs), we test three potential explanations for the existence of IPO lockups: lockups serve as (i) a signal of firm quality, (ii) a commitment device to alleviate moral hazard problems, or (iii) a mechanism for underwriters to extract additional compensation from the issuing firm. Our results support the commitment hypothesis. Insiders of firms that are associated with greater potential for moral hazard lockup their shares for a longer period of time. Insiders of firms that have experienced larger excess returns, are backed by venture capitalists, or go public with high-quality underwriters are more likely to be released from the lockup restrictions.