THE JOURNAL OF FINANCE•VOL.LXI,NO.1•FEBRUARY2006
Initial Public Offerings:An Analysis
of Theory and Practice
JAMES C.BRAU and STANLEY E.FAWCETT∗
ABSTRACT
上海美发学校
We survey336chief financial officers(CFOs)to compare practice to theory in the areas
the way to success
of initial public offering(IPO)motivation,timing,underwriter lection,underpricing,
signaling,and the decision to remain private.We find the primary motivation for going
public is to facilitate acquisitions.CFOs ba IPO timing on overall market conditions,
惠州自考are well informed regarding expected underpricing,and feel underpricing compen-
sates investors for taking risk.The most important positive signal is past historical
earnings,followed by underwriter certification.CFOs have divergent opinions about
the IPO process depending on firm-specific characteristics.Finally,we find the main
reason for remaining private is to prerve decision-making control and ownership.
G REAT EFFORT,THEORETICAL AND EMPIRICAL,has been made to understand manage-rial decision-making in the initial public offering(IPO)process.Most empirical IPO rearch relies on publicly available stock return data or data contained in Securities and Exchange Commission(SEC)filings.In this study we extend the IPO literature by analyzing unique data from surveys of chief financial officers (CFOs)to compare CFO perspectives to prevailing academic theory.Specifically, we examine the following ven issues:motivations for going public,timing of the IPO,underwriter lection,underpricing,signaling,IPO process issues,and the decision to stay private.We survey three subsamples of firms,namely,tho that successfully completed an IPO,tho that began the process but cho to withdraw the issue,and tho that are large enough to go public,but have not attempted an IPO.
∗James C.Brau,Goldman Sachs Faculty Fellow,Finance Department,Marriott School, Brigham Young University,Provo,Utah.Stanley E.Fawcett,Business Management Department, Marriott School,
Brigham Young University,Provo,Utah.The authors thank Vaughn Armstrong, Hal Heaton,Andy Holmes,Grant McQueen,Craig Merrill,Todd Mitton,Mike Pinegar,Jay Ritter, Keith Vorkink,an anonymous referee,the editor(Rob Stambaugh),and participants of Brigham Young University,University of Puerto Rico,and University of Utah minars for helpful comments. We express appreciation to Greg Adams,Rock Adams,Tyler Brough,Will Gross,Bret Rasmusn, and Rich Wood for excellent rearch assistance and to Christine Roundy for outstanding admin-istrative work.Jim Brau recognizes funding from the Goldman Sachs Faculty Fellowship and a Marriott School rearch grant.Stan Fawcett recognizes funding from the Staheli Professorship. Both authors acknowledge the BYU Silver Fund which paid for databas and rearch support. Also we acknowledge Intel for their gift of two rearch computer rvers.Finally,we thank all the CFOs who shared their insights and made this study possible.All errors remain ours.Jim Brau is the contact author.
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Historically,empiricists have had difficulty studying why firms go public due to data constraints.Our su
rvey data allow us to overcome this constraint and directly ask CFOs why they conduct an IPO.We find that CFOs identify the creation of public shares for acquisitions as the most important motivation for going public.Traditional textbook explanations such as lowering the cost of capital and the pecking order of financing are not among the most important reasons for conducting an IPO.Additionally,high-tech firms view an IPO more as a strategic reputation-enhancing move than as a financing decision. Previous literature has documented that IPOs tend to come in waves,char-acterized by periods of hot and cold markets.To understand this phenomenon better,we analyze the timing of IPOs.We find that CFOs take into account market and industry stock returns,and place less emphasis on the strength of the IPO market when considering the timing of their issue.Venture capital (VC)-backed firms and firms with small insider ownership decreas in the IPO tend to view market timing issues as more important than their counterparts. Examining CFO ntiment toward underwriter lection criteria,we find that CFOs lect underwriters bad on overall reputation,quality of the re-arch department,and industry experti.By comparing our results to Krig-man,Shaw,and Womack(2001),we find that CFOs’criteria for choosing un-derwriters have remained stable in the pre-and post-bubble period.Large-firm CFOs feel that IPO spinning(allocating shares to potential client-firm insiders) is more of a concern in underwriter lection than small-firm CFOs.CFOs in firms with high-prestige underwriters lect underwriters bad on reputation, quality,
experti,and institutional investor client ba.By contrast,CFOs in firms that u low-prestige underwriters are more concerned with valuation promis,retail investor client ba,and fee structures.The findings bad on high and low underwriter prestige are not driven by a size effect.
On average,IPOs are priced lower than their first-day market closing price.1 Known as underpricing,this topic is perhaps the most widely studied area in the IPO literature.We find that CFOs are relatively well informed regarding the expected level of underpricing.They feel that underpricing exists primar-ily to compensate investors for taking the risk of investing in the IPO.CFOs indicate that the cond-most important reason for underpricing is the desire of underwriters to obtain the favor of institutional investors.
Regarding signaling theory,CFOs,especially of large firms,view strong his-torical earnings as the most positive signal in the IPO process.Using a top investment banker is the cond-strongest positive signal and committing to a long lockup is the third-strongest positive signal.Selling a large portion of the firm,issuing units,and lling insider shares are all viewed as negative signals.
Our analysis of IPO process ,underwriting contract type,lock-ups,overallotment option,window dressing,and unit offerings)reveals that CFOs view the u of a firm-commitment underwriting contract as the most
lechery
1Between the period1960and2003,IPOs have averaged18%underpricing.(Data taken from bear.cba.ufl.edu/ritter/publ papers/IPOALL.xls.)
Initial Public Offerings401 important issue.Firm commitments are of particular importance to VC-backed firms and withdrawn firms.The lockup period is also important and rves pri-marily as a positive signal by insiders and condarily as an alignment device. The overallotment option is viewed as only moderately important.Concerning window dressing(accrual management in the IPO prospectus financial state-ments),CFOs recognize the importance of prenting strong earnings in the prospectus,but are not preoccupied with potential negative backlash from win-dow dressing.Relative to the other process issues,unit offerings(issues that include options with the stock offering)are not considered as important.
fulltestThe final issue we examine involves factors that influence the decision to withdraw or not conduct an IPO.We find that CFOs,particularly tho in older firms,give maintenance of decision-making control as the primary reason for remaining private.CFOs are also concerned about unfavorable market and industry conditions.CFOs who employ high-prestige underwriters are more confident in the IPO process.High-tech firms are less concerned about control and dilution but are more concerned about bad market and pricing issues.
In all of the preceding issues,we find that CFO ntiment is conditioned on the IPO status of the firm.For example,CFOs who attempted an IPO(either successfully or unsuccessfully)disagree with CFOs who have not tried an IPO (not-tried CFOs)pertaining to motivations for going public,underwriter lec-tion criteria,reasons for underpricing,and negative IPO signals.Regarding the decision to stay private or the decision to withdraw,we find that CFOs of withdrawn IPOs hold different opinions from CFOs in the other two groups. Further,regarding IPO timing,successful CFOs feel industry conditions are less important relative to the other two groups.江西省科技师范学院
The remainder of the paper proceeds as follows.Section I briefly overviews the methodology and data.Sections II–VIII,in turn,review the IPO literature ud to generate the survey questions and prent detailed findings from our data analysis.Section IX summarizes our key conclusions.
I.Rearch Methodology
A.Survey Methodology and Data Sources
Our survey process follows Dillman’s(1978)Total Design Method,which is a standard for conducting academic surveys.The Total Design Method maxi-mizes the respon rate through a ries of mailings to potential respondents. The initial survey instrument was developed bad on an extensiv
e review of the extant IPO literature.We circulated the survey and conducted beta surveys. At each step,feedback was ud to improve the survey.Finally,slight modifi-cations were made to customize the surveys to the three targeted subsamples. An example of one of the final surveys is included as Appendix A.
Mailing lists were constructed as follows.From the Security Data Company’s (SDC)New Issue Databa,we identified nonfinancial panies that had successfully completed an IPO(340valid address)or attempted and subquently withdrew an IPO(179valid address)between January2000
402The Journal of Finance
and December2002.We arched the offering prospectus of each filing firm using EDGAR v to obtain the CFO name and to confirm the company mailing address obtained from SDC.For our private-firm sample,we arched Dun and Bradstreet’s North American Million Dollar Databa and Reference USA Databa and lected the largest(1,500)nonfinancial private firms bad on their2002revenues.We reason the firms are large enough to go public;however,they choo to remain private.We identified valid CFO contact information for1,266of the firms.
We mailed three parate mailings on May5,2003,June11,2003,and September12,2003.Along with each survey,we included a personalized and signed cover letter,a personalized envelope(no labels),a postage-paid reply en-velope,and a glossary of IPO terms.To increa our respon rate,we promid to enter respondents’business cards into a$1,000cash drawing and to provide respondents with an early copy of the results.Overall,336CFOs provided us-able surveys for a respon rate of18.8%.The respons by subsamples are: 212not-tried(16.7%respon),87successfully completed(25.6%respon), and37withdrawn(20.7%respon)firms.Our overall respon rate of almost 19%compares favorably to the Graham and Harvey(2001)respon rate of approximately9%,which they argue is comparable with other financial survey studies.
For publicly available data on the successful IPO sample,we download prospectus data from SDC.We then check the original prospectus from EDGAR and ensure that the SDC data are correct,making corrections when necessary.Using EDGAR,we also fill in some data that are not reported in SDC.In the successful sample,we make264additions or corrections to the SDC download.2In the withdrawn sample,we make150additions or correc-tions to the databa from EDGAR.3Returns data for the publicly traded firms are collected from the University of Chicago’s Ce
nter for Rearch in Securi-ties Prices(CRSP)databa.For the privately held firms,we draw revenues, primary Standard Industrial Codes(SICs),and founding year from Dun and Bradstreet and Reference USA.
B.Summary Statistics of Respondent Firms
Table I reports summary statistics for the conditioning variables ud in subquent tables.The first conditioning variable,Size,is bad on total
2For the successful responding sample,we supplemented SDC with38founding dates,8rev-enues prior to the offer,17numbers of employees,23insider ownerships prior to offer,22insider ownerships after the offer,20offering expens,3book values per share before the offer,3shares outstanding after the offer,and1share outstanding after the offer.We corrected79total asts prior to the offer,33revenues prior to the offer,1number of employees,8lockup indicators,and8 days in lockup.
3For the withdrawn responding sample,we supplemented SDC with36auditors,36asts prior to the offer,36VC-prence indicators,25revenues prior to the offer,and9number of employees prior to the offer.In addition,we made6corrections to revenue reported in SDC and2corrections to the number of employees reported in SDC.
Initial Public Offerings403
Table I
Summary Statistics
The sample consists of336completed surveys compod of37withdrawn IPOs,87successful IPOs, and212firms that were large enough,but did not attempt to go public during the period2000to 2002.Size is bad upon revenues prior to the issue for attempted IPOs and2002revenues for private firms.Founding Year is the year the firm was founded.High-Tech is an indicator variable that equals1(100%)if the firm is in a high-technology industry and0otherwi.Underwriter Prestige rankings are from Jay Ritter’s underwriter databa.Venture Capital is an indicator variable that equals1(100%)when a VC backs the IPO firm and0otherwi.Ownership Decrea measures the insiders’(managers’)ownership percentage decrea in the IPO.Overhang is defined as the quantity of shares outstanding prior to the issue minus condary shares offered in the IPO all divided by total shares offered in the IPO.High IPO Demand is an indicator variable that equals 1(100%)if the final offer price is above or equal to the original mid-filing price and0otherwi. Hot Initial Return IPO is an indicator variable that equals1(100%)when a firm’s initial return (from the offer price to the first closing price)is greater than10%and0otherwi.
all round
谷歌汉译英在线翻译old manVariable Mean Median Std.Dev.Minimum Maximum Size($revenues)373,333,55699,219,0001,117,001,143015,302,000,000 Founding Year1,9771,987271,8492,002 High-Tech(%)18.90.039.20100 Underwriter Prestige7.968.76 1.78 2.109.10 Venture Capital(%)58.310049.50100 Ownership Decrea(%)−24.1−23.111.0−59.47.9 Overhang 5.0 4.7 2.90.220.1
High IPO Demand(%)48.20.050.30100
Hot Initial Return IPO(%)54.210050.10100 revenues.In subquent tables firms are classified as large if they have rev-enues over$100million.The average(median)firm in our sample has$373 million($99million)in revenues.4The cond control is firm age(Age).Firms with a founding year of1987(the median)or earlier are considered old.The third variable,High-Tech,is an indicator variable that equals1when the firm is a high-technology firm and0otherwi.We follow Field and Hanka(2001) and identify high-tech firms using three-digit SIC codes of357,367,369,382, 384,and737.High-tech firms compri nearly19%of the sample.The condi-tioning variables Size,Age,and High-Tech are available for all three IPO-status subsamples.
The next two conditioning variables are available only for firms that at-tempted to go public(either su
ccessfully or unsuccessfully).To control for pos-sible certification effects in ,prestigious underwriters and venture capitalists),we rely on an underwriter prestige metric and a VC indicator vari-able.For Underwriter Prestige,we u rankings provided on Jay Ritter’s website and define high-prestige underwriters as having a score of8.1or greater.When a firm has multiple lead underwriters,we average the scores.The average
心算方法
4We confirm the maximum and minimum revenue numbers.The zero revenue is accurate and applies to two firms.To keep our promi of confidentiality,we cannot specifically name the firms or give characteristics about them that might allow identification.
