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24 posts on "Corporate Finance"

November 21, 2012

Doing Well by Doing Good? Community Development Venture Capital

Anna Kovner

In a new working paper, Josh Lerner and I explore how the venture capital (VC) model can be harnessed to achieve socially targeted ends by examining the investment record of community development venture capital (CDVC) firms. Our results are mixed. Investments made by CDVC firms are less likely to succeed than are investments made by traditional VC firms. This lower probability of success persists even after controlling for the fact that CDVC firms invest in industries and geographies that have, on average, lower success rates. However, we do find that CDVC firms have the benefit of bringing traditional VC firms to underserved regions; controlling for the presence of traditional VC investments, we find that each additional CDVC investment draws an additional 0.06 new traditional VC firms to a region.

Continue reading "Doing Well by Doing Good? Community Development Venture Capital" »

Posted by Blog Author at 7:00 AM in Corporate Finance, Financial Institutions | Permalink | Comments (0)

October 31, 2012

In a Relationship: Evidence of Underwriters’ Efforts to Stabilize the Share Price in the Facebook IPO

Thomas M. Eisenbach, David O. Lucca, and Karen Shen

Stocks are usually offered in initial public offerings (IPOs) at a discount, leading to large first-day IPO returns. When there is a risk of a negative initial return, underwriters are known to actively support the aftermarket price of a stock through buying activities. In this post, we look at the trading book for Facebook stock on May 18, 2012, the day of its highly anticipated IPO. Using what we call a “large integer–price bid” identification assumption to indirectly infer which investors are bidding, we find evidence of significant trading by underwriters seeking to stabilize the stock’s price. This evidence suggests that underwriters incurred significant costs as a result of these activities.

Continue reading "In a Relationship: Evidence of Underwriters’ Efforts to Stabilize the Share Price in the Facebook IPO" »

Posted by Blog Author at 7:00 AM in Corporate Finance | Permalink | Comments (0)

October 29, 2012

Weakness in the U.S. IPO Market

Stavros Peristiani

The high valuations achieved by recent social-media- and Internet-related initial public offerings (IPOs) and their disappointing aftermarket performance have rekindled the specter of the dot-com boom and bust of the late 1990s. This post extends the analysis of my 2004 Current Issues article (with Gijoon Hong) that documents a gradual but significant deterioration in the quality of issuing companies since the 1980s, a trend that reached a low point with the bursting of the Internet bubble in 2000. Despite considerable investor interest in recent web startups, the volume of IPO proceeds has remained weak since the 2000 Internet collapse. An important lesson of the boom-and-bust episode is that a viable and well-functioning IPO market must be based on companies with sound fundamentals and business plans. Although there are no signs of another tech bubble, my post shows that IPO companies have remained, on average, weak financially over the 2001-11 period.

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Posted by Blog Author at 7:00 AM in Corporate Finance | Permalink | Comments (0)

May 16, 2012

The Private Premium in Public Bonds?

Anna Kovner and Chenyang Wei

In a 2012 New York Fed study, Chenyang Wei and I find that interest rate spreads on publicly traded bonds issued by companies with privately traded equity are about 31 basis points higher on average than spreads on bonds issued by companies with publicly traded equity, even after controlling for risk and other factors. These differences are economically and statistically significant and they persist in the secondary market. We control for many factors associated with bond pricing, including risk, liquidity, and covenants. Although these controls account for some of the absolute pricing difference, the price wedge between public and private companies remains. Despite these pricing differences, private companies with public bonds are no more likely to go bankrupt or to be downgraded than are similar public companies. In this post, we briefly summarize the findings of our study.

Continue reading "The Private Premium in Public Bonds?" »

Posted by Blog Author at 7:00 AM in Corporate Finance, Exchange Rates | Permalink | Comments (0)
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