IPO Vintage and the Rise of Idiosyncratic Risk

Fink, Jason; Grullon, Gustavo; Fink, Kristin; Weston, J. Fred

doi:10.2139/ssrn.661321

Cited by 36 publications

(22 citation statements)

References 4 publications

Supporting

Mentioning

Contrasting

Order By: Relevance

“…Typically, the IPO firms are young and relatively unknown to the investing public, which can lead to elevated levels of firm-specific risks associated with their stocks (Fink, Grullon, Fink, and Weston, 2005). Furthermore, the IPO firms differ among themselves in their profitability, growth rates, and survival rates (Fama and French, 2004;Helwege and Liang, 2004), which suggests that their idiosyncratic risk is also likely to vary.…”

Section: Information and Recognition (Attention) Related Constraintsmentioning

confidence: 99%

“…2 Some explanations include presence of speculative episodes (Brandt, Brav, Graham, and Kumar, 2010), rise in institutional holdings (Xu and Malkiel, 2003), rise in the number of younger and riskier IPOs (Fink, Grullon, Fink, and Weston, 2005;Brown and Kapadia, 2007), and rise in volatility of earnings and cash flows (Wei and Zhang, 2006). analyst coverage, and institutional ownership.…”

Section: Introductionmentioning

confidence: 99%

See 1 more Smart Citation

Primary market characteristics and secondary market frictions of stocks

Boehme

Çolak

2012

Journal of Financial Markets

View full text Add to dashboard Cite

Section: Information and Recognition (Attention) Related Constraintsmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Primary market characteristics and secondary market frictions of stocks

Boehme

Çolak

2012

Journal of Financial Markets

View full text Add to dashboard Cite

“…24 Allowing α to be endogenously determined as part of an optimal contract will not qualitatively affect our analysis. An important assumption throughout is that the manager does not have sufficient liquid assets to buy out the investors.…”

Section: Managerial Autonomy Parametermentioning

confidence: 99%

Market Liquidity, Investor Participation and Managerial Autonomy: Why Do Firms Go Private?

Boot

Thakor²,

Gopalan

2006

SSRN Journal

View full text Add to dashboard Cite

We analyze a publicly-traded firm's decision to stay public or go private when managerial autonomy from shareholder intervention affects the supply of productive inputs by management. We show that both the advantage and the disadvantage of public ownership relative to private ownership lie in the liquidity of public ownership. While the liquidity of public ownership lets shareholders trade easily and supply capital at a lower cost, the liquidity-engendered trading also results in stochastic shocks to a firm's shareholder base. This exposes management to uncertainty regarding the identity of future shareholders and their extent of intervention in management decisions and in turn curtails managerial incentives. By contrast, because of its illiquidity, private ownership provides a stable shareholder base and improves these inputprovision incentives but results in a higher cost of capital. Thus, capital market liquidity, while being a principal advantage of public ownership, also has a surprising "dark side" that discourages public ownership. Our model takes seriously a key difference between private and public equity markets in that, unlike the private market, the firm's shareholder base, namely the extent of investor participation, is stochastic in the public market. This allows us to extract predictions about the effects of investor participation on the stock price level and volatility and on the public firm's incentives to go private, thereby providing a link between investor participation and firm participation in public markets. Lesser investor participation induces lower and more volatile stock prices, encouraging public firms to go private, whereas greater investor participation encourages younger firms to go public. Moreover, IPO underpricing is optimal because it is shown to lead to a higher and less volatile post-IPO stock price, greater autonomy for the manager and a higher supply of privately-costly managerial inputs.

show abstract

“…Similarly, Helwege and Liang (2004) report that firm characteristics are more or less similar in hot and cold markets. However, some authors including Lowry and Schwert (2002), Fink et al (2005) and Howe and Zhang (2005), argue that various firm characteristics such as firm age and underwriter quality can explain the cyclical patterns of IPOs. However, as reported by Yung et al (2008), "these studies do not address the underlying causes of observed variation in firm characteristics."…”

Section: The Changing Risk-composition Hypothesismentioning

confidence: 99%