1、Why do companies go public? (Pagano, Panetta & Zingale, JF, 1998),Purpose Analyze ex-ante characteristics of IPO decisions Analyze ex-post consequences of IPO decisions Data 11 years: 1982-1992 Compares firms eligible to go public vs firms went public 139 new listings on the Milan Stock Exchange Eli
2、minated: bank, insurance, financial companies Final sample: 69 firms of which 29 are curve-outs,Some empirical predictions (See: Table II),Information asymmetry hypothesis The probability of going public should be positively related with age, size of a firm Financing constraint hypothesis The probab
3、ility of going public should be positively related with firms investments, leverage and growth Diversification hypothesis The probability of going public should be positively related with the riskiness of a firm,Empirical Results,Determinants of IPO decision: Table III Effects of the IPO decision: T
4、able IV,Ownership and Operating performance of IPO firms (Mikkelson, Partch & Shah: JFE 1997),Going public represents a decline in the (owner)managers stakes in the firm. Agency theory predicts that there will be less alignment of shareholders interest with that of the managers. As such, firm perfor
5、mance will decline after IPO.,Empirical results,Managerial ownership declines substantially after IPO. Yet sizeable ownership stake remains. A significant decline in operating performance only in the first year of IPO, but not later on. Operating performance is unrelated to managerial ownership. Pre
6、diction of agency theory does not hold! Managers continue to remain large shareholders Other mechanisms (incentive compensation, takeover threat, etc.) play a more important role after IPO than ownership stakes.,Capital Structure,How should a company choose its debt -equity mix that makes its total
7、market value as large as possible? Do capital structure changes matter? Why they matter?,Are capital structure decisions relevant?,Under the assumption of perfect capital market, capital structure decisions do not affect firm value But, when the assumptions are not met, firm value varies with change
8、s in the debt-equity mix Imperfections: Taxes, Financial distress costs, Agency costs, Asymmetric information,Empirical issues,How to measure capital structure? Which factors determine capital structure? Why firms choose to issue a particular security? What is the capital market reaction to the news
9、 of security offerings? How can we explain price reaction? Is subsequent change in operating performance consistent with stock price change?,Ways to empirically investigate capital structure issues,Analyze capital structure patterns (Rajan et al. JF, 1998) Relate capital structure to firm / industry
10、 / institutional characteristics (Rajan et al. JF, 1998) Analyze the choice of capital structure decisions (Jung et al., JFE, 1997) Analyze the impact of capital structure decisions (Kabir and Roosenboom, JCF, 2003),Balance Sheet of a firm,How do we define debt?,Comparing capital structure internati
11、onally,What do we know about capital structure? (Rajan and Zingales, JF, 1995),Comparing capital structure across countries becomes difficult due to lack of consistent information: differences in accounting and financing methods. Three sources of differences in accounting practices: Not all countrie
12、s require firms to report consolidated balance sheets Valuation of assets (at historical costs or current value) differ Some items are included / not included in balance sheet: Lease; Funded / Unfunded pension liabilities; Provisions; etc.,Measures of Leverage,1. TL / TA Broadest definition US, UK h
13、ave lower leverage than Eur. countries In market value terms, Japan is not more levered 2. Debt (STD + LTD) / TA Here trade credit (non-debt liabilities) is not included; Lev looks less Germany & UK have low levels of leverage in both BV and MV levels 3. LTD / Total capital (LTD + Equity) Shows the
14、effect of long-term financing Neither German and Japanese companies are very highly levered by US standard,Country specific features,Germany: Firms show pension liabilities on the Balance Sheet, but no offsetting entry on pension assets; Reserves are reported separately from equity; these do not cov
15、er specific obligations, but serves as “equity for a rainy day” - to offset future drop in earnings Japan: Large companies borrow and then lend to suppliers and related companies (they have offsetting loans),Adjustments to country-specific features,Do these findings remain same after adjustments (of
16、 accounting practices)? Provisions for future liabilities are dubious; so add to equity Pensions liabilities deduct these from assets Intangible assets (goodwill from acquisitions) may exaggerate assets; so deduct from equity Deferred taxes may have to be considered as part of shareholder equity,Exp
17、laining capital structure differences,Capital structure of firms from different countries could be explained by taking into consideration the institutional differences Taxes (corporate, personal, local taxes) Bankruptcy law (US going concern; UK, Germany creditor rights, premature liquidation) Financial system: Bank versus Market-based countries (private financing, bank as underwriter, bank as equity provider) Ownership structure (Large shareholders, Banks),
