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The New York Fed engages with individuals, households and businesses in the Second District and maintains an active dialogue in the region. The Bank gathers and shares regional economic intelligence to inform our community and policy makers, and promotes sound financial and economic decisions through community development and education programs.
In a new working
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.
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.
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.
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.
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