Good IPOs draw in bad: inelastic banking capacity and hot markets
We posit that screening IPOs requires specialized labor which, in the short run, is in fixed supply. Hence, a sudden increase in demand for IPO financing increases the compensation of IPO screening labor. Increased compensation results in reduced screening which encourages sub-marginal firms to en...
| Main Authors: | , , |
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| Format: | Working paper |
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University of Oxford
2008
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| _version_ | 1797070056251719680 |
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| author | Khanna, N Noe, T Sonti, R |
| author_facet | Khanna, N Noe, T Sonti, R |
| author_sort | Khanna, N |
| collection | OXFORD |
| description | We posit that screening IPOs requires specialized labor which, in the short run, is in fixed supply. Hence, a sudden increase in demand for IPO financing increases the compensation of IPO screening labor. Increased compensation results in reduced screening which encourages sub-marginal firms to enter the IPO market, further increasing the demand for screening labor and thus its compensation. The model's conclusions are consistent with empirical findings of increased underpricing during hot markets, positive correlation between issue volume and underpricing, negative correlation between issue volume and information production, and with tipping points between hot and cold markets characterized by discontinuous jumps in volume, underpricing, and issue quality. Finally, the model makes sharp and so far untested predictions relating IPO market conditions both to the fundamental values of IPO firms and to the returns to investment banks and investment banking labor. |
| first_indexed | 2024-03-06T22:33:34Z |
| format | Working paper |
| id | oxford-uuid:5916713f-0bc7-4a97-9744-4eb0c6c3cc07 |
| institution | University of Oxford |
| last_indexed | 2024-03-06T22:33:34Z |
| publishDate | 2008 |
| publisher | University of Oxford |
| record_format | dspace |
| spelling | oxford-uuid:5916713f-0bc7-4a97-9744-4eb0c6c3cc072022-03-26T17:07:42ZGood IPOs draw in bad: inelastic banking capacity and hot marketsWorking paperhttp://purl.org/coar/resource_type/c_8042uuid:5916713f-0bc7-4a97-9744-4eb0c6c3cc07Bulk import via SwordSymplectic ElementsUniversity of Oxford2008Khanna, NNoe, TSonti, RWe posit that screening IPOs requires specialized labor which, in the short run, is in fixed supply. Hence, a sudden increase in demand for IPO financing increases the compensation of IPO screening labor. Increased compensation results in reduced screening which encourages sub-marginal firms to enter the IPO market, further increasing the demand for screening labor and thus its compensation. The model's conclusions are consistent with empirical findings of increased underpricing during hot markets, positive correlation between issue volume and underpricing, negative correlation between issue volume and information production, and with tipping points between hot and cold markets characterized by discontinuous jumps in volume, underpricing, and issue quality. Finally, the model makes sharp and so far untested predictions relating IPO market conditions both to the fundamental values of IPO firms and to the returns to investment banks and investment banking labor. |
| spellingShingle | Khanna, N Noe, T Sonti, R Good IPOs draw in bad: inelastic banking capacity and hot markets |
| title | Good IPOs draw in bad: inelastic banking capacity and hot markets |
| title_full | Good IPOs draw in bad: inelastic banking capacity and hot markets |
| title_fullStr | Good IPOs draw in bad: inelastic banking capacity and hot markets |
| title_full_unstemmed | Good IPOs draw in bad: inelastic banking capacity and hot markets |
| title_short | Good IPOs draw in bad: inelastic banking capacity and hot markets |
| title_sort | good ipos draw in bad inelastic banking capacity and hot markets |
| work_keys_str_mv | AT khannan goodiposdrawinbadinelasticbankingcapacityandhotmarkets AT noet goodiposdrawinbadinelasticbankingcapacityandhotmarkets AT sontir goodiposdrawinbadinelasticbankingcapacityandhotmarkets |