2. Theories explaining IPO underpricing Initial public offerings are becoming one of the most investigated topics and interesting to financial economists worldwide. Several prior researches related to IPOs report the tendency to be underpriced. However, it is doubt that why firms sacrifice huge amounts of money on the table for investors' high return and what the price is optimal for IPO shares in the primary market. Many theories have been put forward to explain and test the IPO underpricing against the sample of various countries in different time.
The interesting issue is that the venture capital fund invariably wants the exit that gives rise to the highest financial gain, while the entrepreneur may want to go public for non-pecuniary reasons even when the financial gain from an acquisition is superior. Acquisition exits are more likely to result when venture capital funds have stronger control rights, whereas IPOs are more likely when venture capital funds have weaker control rights. Similarly, corporate venture capital funds are more likely to use a greater number of veto rights (over asset sales, asset purchases, changes in control, and issuances of equity) and more likely to use debt securities than limited partnership venture capital
The mechanism of finance in this market has large maturity periods. The insecurity and inaccurate prediction on the expected rate of returns or even possibility of losses in an investment is defined as “risk” in financial terms. . The Capital Market Theory was created upon the Markowitz Portfolio Model. Their crucial and important assumptions of the above mentioned theory are as follows; • All investors are resourceful investors- Investors follow Markowitz idea of the efficient frontier and thus prefer to invest in ranges of and along the boundary.
Frielinghaus et al. (2005), argued that according to the life cycle theory of capital structure, debt ratios should be increased with the progress of the firm, from the early stages of her life to them later. Trade-off theory supports the life cycle theory. So, firms in the early stages (infancy, continuity and teens) cannot afford the high levels of debt, because their costs of bankruptcy are high and their incomes are too low to ensure benefit from deductions interest debt before tax. Stages of maturity and stability, higher earnings are prompting firms to provide advantages from the use of debt.
Directors may also exercise their powers over the management of the company even if it means acting against the wishes of the majority of shareholders. The Directors are under a fiduciary duty to act in the best interests of the Company as a whole whereas, the shareholders exercise their voting rights in accordance to their own interest and benefit. However, in recent years, the Courts recognize the fact that acting with a view to the best interest of the Company, does not necessarily mean that the directors should completely disregard and ignore the interests of employees and creditors who are directly affected by the decisions taken by the Board of Directors representing the Company. An exception to this fiduciary duty to act in the best interests of the Company is in the event of the Company’s insolvency, where the interests of the creditors are superior to anybody else and the directors owe a duty to them to ensure that all the affairs of the Company are well
Leverage used for the assessment of risk, those corporations are higher capitalization ratio are assume to be risky. Companies face more difficulty to get loans from general public, when their leverage ratio are so high. A high leverage ratio is not assume too bad in some cases, like as higher capitalization can increase the return on a shareholder’s investment due to tax advantage which linked with the borrowings. . 2.7 Theoretical Framework Risk it = α + β1Sizeit + β2SCLit + β3KSEt +β4GDPt + β5REGit + β6RISK (-1) it + €it Where RISK = Equals (ROA+CAR/σ (ROA), where ROA is return on assets and CAR is capital‐asset ratio, both averaged over 2008‐2012.
● Repurchase of shares increases the earnings per share (EPS), due to the reduction in the number of outstanding shares. ● Buybacks also counter unfavourable events such as hostile takeovers by preventing another firm from acquiring the company’s majority stock. The takeover target may buy back shares at a price, which is greater than the market value. ● Accelerated share repurchase stimulates the existing open market repurchase programs. ● Companies also consider buybacks for compensation reasons; at times, the company's employees and management are rewarded with stock rewards and stock options.
The core business of the retail banking industry and the banking industry as a whole involves taking risks mainly when offering credit facilities to borrowers. It is for this reason that the risk taking behavior of a bank will always have an impact on the bank’s profitability and ultimately on whether or not the bank remains a going concern. This is despite that in a number of countries the non-interest income on banks is growing in importance; after-all loans constitute the largest share of bank’s assets. Over the years there has been a significant amount of research on the effects of competition on the risk taking behavior of banks and hence their stability. This has been coupled with inquiries by different competition authorities around
Market share and concentration Market share could be used as a basic factor to consider market power of a firm. It is calculated on the turnover or volume of sales of that firm in total of market . The higher in market share means the greater in sale this firm gains from its competitors and usually reflect a part of its power in the market. From number of participants and their market shares, the degree of market concentration could be defined. The higher market concentration, we could think about a firm closer a monopoly .
Secondly, the growth level of NBFIs will increase competition in the market. Thus, it produced an intensive competition of the market where it will cause the company to suffer for low profits, high risk investment and ethics problem. Consequently, the small company which unable to sustain the loss are forced to end their business. On the other hand, due to the increase of funding accessibility, the public may spend a lot in ineffective investment which leads to credit defaults. Thirdly, the growth level financial intermediate will lead to increase in the credit-deposit ratio on the financial system.