We investigate the nature and magnitude of short-selling activity around seasoned equity offerings, the relation between short-selling activity and issue discounts, and the consequences of the Securities and Exchange Commission (SEC's) adoption of Rule 10b-21 in response to concerns about manipulative short-selling practices. Seasoned offerings are characterized by abnormally high levels of short selling and option open interest. Higher levels of such activity are related to lower expected proceeds from the issuance of new shares. Where it could not be circumvented, Rule 10b-21 appears to have curbed short-selling activity and reduced issue discounts.

We investigate the nature and magnitude of short‐selling activity around seasoned equity offerings, the relation between short‐selling activity and issue discounts, and the consequences of the Securities and Exchange Commission (SEC's) adoption of Rule 10b‐21 in response to concerns about manipulative short‐selling practices. Seasoned offerings are characterized by abnormally high levels of short selling and option open interest. Higher levels of such activity are related to lower expected proceeds from the issuance of new shares. Where it could not be circumvented, Rule 10b‐21 appears to have curbed short‐selling activity and reduced issue discounts.

In human capital intensive industries where it is difficult to contract upon the training effort of skilled agents a socially suboptimal level of training may occur. We show how partnership organisations can overcome this problem by tying human and financial capital. Partnerships are opaque so that the willingness of clients to pay depends upon reputation. Partnerships are illiquid and partners must stay with the firm until clients discover their type and update the firm's reputation. This renders unskilled agents, who will aversely affect reputation, unwilling to accept partnerships. Skilled agents therefore train the next generation so as to ensure that there is an adequate market for their own shares. We comment upon the salient differences between partnerships and joint stock firms.

In 1970 the New York Stock Exchange relaxed rules that prohibited the public incorporation of member firms. Investment banking concerns went public in waves, with Goldman Sachs the last of the bulge bracket banks to float. We explain the pattern of investment bank flotations. We argue that partnerships foster the formation of human capital and we use technological advances that undermine the role of human capital to explain the partnership's going‐public decision. We support our theory using a new data set of investment bank partnership statistics.

Exchange members claim that the professional relationships that evolve on exchange floors yield benefits not easily duplicated by an anonymous exchange mechanism. We show that longstanding relationships between brokers and specialists can mitigate the effects of asymmetric information. Moreover, a specialist who actively attempts to differentiate between informed and uninformed traders can achieve equilibria that Pareto-dominate an equilibrium in which the two types of trades are pooled. Our model also elucidates the role of block trading houses in mitigating information problems in the block market.

We investigate whether analyst behavior influenced banks' likelihood of winning underwriting mandates for a sample of 16,625 U.S. debt and equity offerings in 1993–2002. We control for the strength of the issuer's investment banking relationships with potential competitors for the mandate, prior lending relationships, and the endogeneity of analyst behavior and the bank's decision to provide analyst coverage. Although analyst behavior was influenced by economic incentives, we find no evidence that aggressive analyst behavior increased their bank's probability of winning an underwriting mandate. The main determinant of the lead‐bank choice is the strength of prior underwriting and lending relationships.

Unlike in the U.S., the initial price range for European IPOs is seldom revised, although issues are often priced at the upper bound. We develop a model that explains this seemingly inefficient pricing behavior. As in Europe, but not in the U.S., underwriters in the model obtain information from investors before establishing the indicative price range. A commitment to stay within the range is necessary to extract private information from investors. Ours is therefore the first treatment in which the bookbuilding range has a clear economic role. The model has important implications for empirical research based on European primary market data.

We present a model that explains why investment bankers struggle to manage conflicts of interest. Banks can build a type reputation for technical competence by performing complex deals that may not serve their clients' interest; on the other hand, banks can sustain a behavioral reputation by refraining from doing so. A behavioral reputation is a luxury reserved for banks that have proven their abilities. The model sheds light on conflicts between the trading and advisory divisions of investment banks, as well as the consequences of technological change for time variation in the relative strength of behavioral- and type-reputation concerns.

We examine the costs and benefits of the global integration of initial public offering (IPO) markets associated with the diffusion of U.S. underwriting methods in the 1990s. Bookbuilding is becoming increasingly popular outside the United States and typically costs twice as much as a fixed-price offer. However, on its own, bookbuilding only leads to lower underpricing when conducted by U.S. banks and/or targeted at U.S. investors. For most issuers, the gains associated with lower underpricing outweighed the additional costs associated with hiring U.S. banks or marketing in the United States. This suggests a quality/price trade-off contrasting with the findings of Chen and Ritter, particularly since non-U.S. issuers raising US$20 million–US$80 million also typically pay a 7% spread when U.S. banks and investors are involved.

We provide evidence that firms attempting IPOs condition offer terms and the decision whether to carry through with an offering on the experience of their primary market contemporaries. Moreover, while initial returns and IPO volume are positively correlated in the aggregate, the correlation is negative among contemporaneous offerings subject to a common valuation factor. Our findings are consistent with investment banks implicitly bundling offerings subject to a common valuation factor to achieve more equitable internalization of information production costs and thereby preventing coordination failures in primary equity markets.