BUSI 4500 Lecture Notes - Lecture 4: Institutional Investor, Arkansas Highway 1, Private Placement
7 May 2018
School
Department
Course
Professor
Lecture 4
1. Review of IPO
a. Method to increase equity
i. Merger and acquisition
ii. Private placement
iii. Issue equity
b. Reason
i. Increase capital
ii. Cash out
iii. Exit opportunity
c. Role of intermediaries
i. Help process
ii. Estimate price and value
iii. Decrease asymmetry information
iv. Low underwriting cost
d. Strategy
i. Disclose as much information as possible
ii. Reputation underwritten
iii. Institutional investor
2. Long term performance of IPO
a. Method
i. 1. CAR = total AR
ii. holding period return: R = N(1+r)
iii. three year month return: AR = R1-Rm
iv. wealth relative: WR = (1+AR)/(1+Arm)
v. cross sectional regression
o variable: proceed/ industry/ age/ year issuance
b. Result
i. Underperform
ii. Less offer worst after market
iii. Age of IPO vs long term performance: positive relationship
iv. Firm go public when investor willing to pay high P/E
3. IPO: analysis of theory and practice
a. Survey
b. Why public
i. Create public share
ii. Establish price or value of firm
c. When
i. Need for cash
ii. Overall market condition
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