ipl-logo

Underpricing Case Studies

1713 Words7 Pages

Interest rate Chowdhry, Bhagwan and Sherman (1996) have documented that interest rate has a positive relationship on underpricing. Chowdhry, Bhagwan and Sherman (1996) use the case of information leakage to explain the factors cause underpricing. They examined the gap between oversubscription and underpricing by comparing US and UK style IPOs. They argue that the causes for the reducing cost of underpricing are the interest earned on the subscription funds and, therefore, lead the issuers to underprice more. From this point of view, they conclude that during the period when interest rates are high, the underpricing is higher also. Using data from 431 IPOs during January 1986 - December 1998, Johnston and Madura (2003) analyzed the impacts of …show more content…

It is usually considered as the expense of going public (Derrien & Kecskes, 2007). This higher initial return is considered a higher valuation uncertainty for a particular IPO issue. Briefly, a positive gain of a new issue immediately after flotation is known as IPO underpricing and it often occurs in the markets. (Brealey & Myers, 2002; Yong & Isa, 2003). The pros provided by going public are enabled to obtain an additional funding while minimizing the risks that may otherwise arise from debt, leverage its visibility and reputation in the market and motivate greater transparency and accountability. (Caselli, 2010). On the other hand, Ibbotson & Ritter (1995) and Damodaran (2010) stated that additional costs, including loss of control, professional fees, obligations to fulfill capital market regulations, and underpricing are the risks born by the firm that going public. IPO underpricing reduces the capital received by an IPO firm through the IPO process, this is because, during the initial trading day in the secondary market, the firm will get the stock return. (Lin & Chuang,

Show More
Related

  • Dbq Great Depression

    590 Words  | 3 Pages

    Investors believed that

    Read More

  • Case Study Malcolm Small

    155 Words  | 1 Pages

    Malcolm Small has lived a sheltered life with parents who don't seem to care about him. Now, during the summer between high school graduation and going away to college, Mal wants to take control of his life and make some improvements...starting with making a new friend. Wes, the boy across the street, quickly becomes both friend and a sort of mentor to Mal. With Wes's patient guidance and example, Mal's breaking free of his life-long shy shell and taking chances. Mal is also feeling free enough to start listening to the tiny voice inside him that whispers his attraction to Wes.

    Read More

  • Tommy Lynn Sells Case Study

    622 Words  | 3 Pages

    Tommy Lynn Sells was a man that was sentenced to death for not just one murder, but almost seventy. (Blanco, 2017)He was caught after having murdered a thirteen year old girl name Katy Harris and injuring Krystal Surles. At the time Katy Harris’ father was helping Sells out. He had broken into the house through the window, walked down the hall to the girls room and laid down next to Katy and gently woke her up. She woke up and was confused as to why he was there.

    Read More

  • Case Study Brent Small Case

    79 Words  | 1 Pages

    In regards to the Brent Small case, I personally believe that Mr. Smalls shouldn't be found guilty due to the lack of evidence. Although there was a witness who saw what happened, the evidence isn’t consistent with the case. The vehicle did match the description but the witness was unsure of the license plate and the damage to the vehicle isn’t significant to the crime committed. I don't believe that the evidence is strong enough to convict Mr. Smalls.

    Read More

  • Case Study: Flowers Inc.

    281 Words  | 2 Pages

    Jim, the victim in the following case, cannot recover damages from Ruth, although she is responsible for the damage caused to him. He will have to instead recover from her employer, Flowers Inc. The occurrence of the accident happened within the range of employment and the employer is responsible, so this would fall under the respondent superior liability. As per the respondeat superior liability, the employer is responsible, accountable and liable for the damage resulted from the accident (BizFilings, 2016).

    Read More

  • Case Study Of Warby Parker

    1918 Words  | 8 Pages

    Warby Parker Marketing plan summary 1. Background: Company mission, overview The eyewear industry is controlled by a single monopoly company and prices of eyeglasses has been set abnormally high. So Warby Parker was founded in February 2010 to create an alternative choice.

    Read More

  • Similarities And Differences Between The Single Index Model And Capital Asset Pricing Model

    1217 Words  | 5 Pages

    Outline the similarities and differences between the Single Index Model (SIM) and the Capital Asset Pricing Model (CAPM). Justify which of the two models makes a better assessment of return of a security (25 marks). To reduce a firm’s specific risk or residual risk a portfolio should have negative covariance or rather it should have no variance at all, for large portfolios however calculating variance requires greater and sophisticated computing power. As such, Index models greatly decrease the computations needed to calculate the optimum portfolio. The use of such Index models also eliminates illogical or rather absurd results.

    Read More

  • Huaneng Power International Case Study Solution

    1308 Words  | 6 Pages

    At last, on August 30, 1994, the company announced going public and listing on the New York Stock Exchange (NYSE) by launching an Initial Public Offering (IPO), decidedly accepting the strong benefits but also risks associated with it. 1) What are alternatives for HPI to raise money? How did they raise money? Why did they use the NYSE and not the HKSE?

    Read More

  • Blaine Kitchenware: Case Study: Blaine Kitchenware Case

    921 Words  | 4 Pages

    Introduction The main objective of this particular case study is to assist Victor Dubinski, the current CEO of Blaine Kitchenware, decide whether or not repurchasing shares and changing the firm’s capital structure in favor of more debt could actually be benefit the company and its shareholders. Blaine Kitchenware is a small cap, public company who focuses on selling various different residential kitchen appliances. Up until this point, the company has only used cash and equity financing to acquire independent kitchen appliance manufacturers, and expand into foreign markets abroad. Given their excess cash and lack of debt, Blaine Kitchenware is considered to be “over-liquid and under-leveraged” (Luehrman & Heilprin, 2009).

    Read More

  • Minimum Wage: A Case Study

    315 Words  | 2 Pages

    One of the elasticity conditions that make the statement about increasing the minimum wage resulting in less employment for employees who now earn less than the minimum wage is the price inelastic condition which states "...when demand is price inelastic, a given percentage change in price in a smaller percentage change in quantity demanded" (Rittenberg and Tregarthen, 2013, p. 116). The reason this elasticity condition rings true is because the total percentage change in the revenue of the minimum wage workers would still rise if there is a smaller percentage change of under minimum wage workers that were to be unemployed than the percentage of the wage increase. The second elasticity condition that would make the statement

    Read More

  • Grandma's Best Swot Analysis

    984 Words  | 4 Pages

    Their three options include a loan (sweetheart), bonds or an IPO. The firm has expressed interest in the first option (loan). This appears to be a good fit as they have decreased their long-term liabilities from previous years and if they want to expand, extra liquidity will be needed. The firm’s current line of credit is about double what it normally is and the payments on their remaining long-term debts are going to increase through the next four years with a balloon payment due in 2015 of $642,000. The increased current line of credit is due to the recently added production lines and only carries a 4% interest rate.

    Read More

  • Case Study Fresh To Table

    821 Words  | 4 Pages

    Esther Matz Dr. Emmanuele Archange Bowles MAN 4301 Assignment 3 Case Study – Fresh to Table Fresh to Table, a company that was created by Mossberger, is a company that serves restaurants. It helps restaurants find appropriate resources to minimize their expenses and losses and maximize their benefits and freshness. In just four years Fresh to Table built itself up and had employed 120 employees.

    Read More

  • Porter's Five Forces For Bicycle Industry

    724 Words  | 3 Pages

    2.2 Industry Analysis - Porter’s 5 Forces Analysis Threat of Substitutes Bicycles and services from unknown manufacturers can provide huge substitution threats. Just as alarming for bicycle manufacturers is the internet: it is developing as an excellent medium for cheap marketing services. The price that consumer are willing to pay for a product is depends the quantity and the availability of substitute products. When a close substitute for a product is exist, industry profitability is suppressed because consumer will pick out if the price are high. Example consumer will compare the price of other bicycles with this bicycle in terms of quality and appearance, a customer can easily get another bicycle which is less difference but in more cheaper

    Read More

  • Lehman Brothers Red Flags Case Study

    985 Words  | 4 Pages

    In order to identify red flags for risk management from various financial risk ratios, models, and traditional ratios for Bear Stearns and Lehman Brothers, we list our calculation results below. Based on our calculation, Bear Stearns got 15 red flags, which occupied 68% of total red flags, while Lehman Brothers 12 red flags, occupying 55% of total red flags. These two numbers were high even compared with other investment banks, and companies committed fraudulent activities. In summary, both Lehman Brothers and Bear had high possibility of going bankruptcy.

    Read More

  • Single Index Model And Capital Asset Pricing Model

    1129 Words  | 5 Pages

    Outline the similarities and differences between the Single Index Model (SIM) and the Capital Asset Pricing Model (CAPM). Justify which of the two models makes a better assessment of return of a security (25 marks). To reduce a firm’s specific risk or residual risk a portfolio should have negative covariance or rather it should have no variance at all, for large portfolios however calculating variance requires greater and sophisticated computing power. As such, Index models greatly decrease the computations needed to calculate the optimum portfolio. The use of such Index models also eliminates illogical or rather absurd results.

    Read More

More about Underpricing Case Studies

Open Document