Studied by :

Namra Mubarak

prestige enhancement a firm engages in

during the year before its initial public

offering.

As the final year counts down, prestige-

poor firms aggressively hire prestigious

executives and directors and pay higher

prices to do so.

Scholars have long been interested in the

idea that organizations can signal their

worthiness by having affiliations with

prestigious parties .

These prestigious affiliates include

toptier underwriters

well-established auditors

Leading venture capitalists

prominent alliance Partners

upper echelons members

The first mechanism, the “prestige

snowball model,” represents consolidated

portrayal

of some well-known processes—notably,

“homophily,” social validation, and signaling—

that cause those organizations that already

have the most prestige to steadily

accumulate even more

Our second model, the “dressing-up model,” is

built upon a phenomenon that, to our

knowledge, has not been studied in the

context of macro-organizational behavior:

deadline-induced remediation.

(i.e., as the final year counts down) those

firms that are most lacking in prestigious

affiliates will aggressively enlist new

affiliates.

Hypothesis 1. The greater the quantity of

preexisting prestige, the greater the number

of prestigious executives and directors hired

during the year leading up to an IPO.

Hypothesis 2. As the final year prior to IPO

progresses (as urgency increases), the

greater the number of prestigious executives

and directors hired.

Hypothesis 3. The combination (or

interaction)

of increased urgency and scarcity of

preexisting prestige is positively associated

with the number of prestigious executives

and directors hired during the year leading

up to an IPO.

Hypothesis 4. Increased urgency further

enhances the effects of scarcity of

preexisting prestige on the premium that

prestigious executives are paid.

sample included all U.S. IPOs issued from

1994 to 1996 in three sectors of the computer

software industry: computer programming

services (SIC 7371), computer software (SIC

7372), and computer integrated

systems design (SIC 7373).

Our final sample

consisted of 242 IPO firms. Pre-IPO financial

data.

size, measured as the market capitalization

at the end of each year

Financial viability, measured as the

percentage of quarters during the three-

year period in which the firm was

profitable;

Liquidity, the ratio of annual dollar

value traded to market capitalization; and

Free float, the percentage of each

company’s shares that are available for

trading in the market.

DEPENDENT VARIABLE:

Number of prestigious executives and prestigious directors hired each month.

INDEPENDENT VARIABLE:

Urgency. This was measured as the inverse of the number of months remaining until the IPO registration date.

Scarcity of preexisting prestige

Personal prestige. This measure was a dummy

variable (coded 1 if a hired executive was prestigious,and 0 otherwise). This measure was used to test our compensation hypotheses.

Firm characteristics.

Number of prestigious underwriters.

Segment and year dummies.

Individual characteristics.

Peers’ compensation.

Number of preexisting executives, outside

directors,

were in support of

Hypothesis 4, indicates that a firm must pay

particularly high compensation if the

executive is prestigious, and the firm lacks

preexisting prestige, and the IPO

registration date is drawing near.

compensation results clearly support the

dressing-up model by indicating that deadline-

induced remediation is possible—but

relatively costly.

o we did not have data on any individuals who

were previously with a firm but left prior to

IPO. Relatedly, we lacked data on the

complete employment histories of executives

and directors

o data on when an underwriter

is enlisted is not publicly disclosed.

Section 4 discusses what I term the CLAS controversies. C is the payment of excessive commissions by investors. L is laddering, the practice of allocating shares in return for promises of additional purchases once the stock starts Trading . A is biased analyst recommendations, with underwriters competing for business from issuers by either implicitly or explicitly promising favorable coverage from their research analysts. S is spinning, the practice of allocating shares from other IPOs to the personal brokerage accounts of issuing

Section 5 analyzes why average underpricing is so high

Section 6 discusses why IPO volume has been low in the U.S. ever since the tech stock bubble burst in 2000.

Section 7 summarizes the evidence on the long-run performance of IPOs.

The U.S. has 4 historically been the world’s

largest IPO market

China has had the most extreme

underpricing

With the exception of 1999-2000, the under

pricing of IPOs in the U.S. has been modest

in comparison to China.

The empirical IPO literature focuses mainly

on returns, both first-day and long-term. Yet,

many questions are about price levels.

Rock’s (1986) adverse selection model

assumes that the issuing firm and its

underwriters do not know the value of the

firm with certainty, but that some investors

do know. There are no agency problems

between issuers and underwriters, so

underwriters play no role.

As long as issuing firms desire favorable

coverage from influential security analysts

employed by investment banking firms that

also underwrite equity securities, one way to

attract

business (“winning the mandate”) is to

bundle analyst coverage with underwriting.

Underwriters receive revenue both from the

gross spread paid by issuers on IPOs and

from soft dollars paid by rent-seeking

investors

The author is not aware of any affiliations,

memberships, funding, or financial holdings

that

might be perceived as affecting the

objectivity of this review. The author would

be happy to

receive large amounts of external funding

that would create a conflict of interest

Taylor & Francis makes every effort to ensure the

accuracy of all the information (the "Content”)

contained in the publications on our platform.

Samuel Sejjaaka

A Makerere University Business School , P.O. Box

1337, Kampala, Uganda.

Published online: 04 Oct 2011

To link to this article:

http://dx.doi.org/10.1080/17520843.2011.59

To identify determinants of initial public offers

readiness in large firms that have not yet sought to

raise capital through a stock market.

A conceptual framework is developed to determine

micro determinants of initial public offers readiness

•IPO can facilitate future acquisitions,

higher valuations, debt reductions and

public profile enhancement.

•Making the transition from public to

private can take anywhere from nine to

eighteen months, requiring a huge

commitment in terms of time, effort and

resources on behalf on the organization

Once senior executives make the

decision to go forward with an IPO,

there is no guarantee the firm will

succeed. ((Latham and Bran, 2010).

IPO market serves as an economic

indicator :

Due to its proven pro-cyclical nature

Economic Expansion : HOT markets

Regression : COLD markets.

Findings or Gap filled by Article :

Investigating a 20-year time series, including

three periods declared recessions by the

National Bureau of Economic Research, of U.S.

IPOs.

Collective Gap.

•IPOs occurring during hot markets are

fundamentally different from those occurring

during cold markets.

•By reviewing the theory “Second,

Chemmanur

and He (2011)”

•Firms go public during the hot market will

have

lower productivity and post-IPO profitability.

•Do firms that go public in hot markets

have a different survival probability than

firms that go public in cold markets?

•We investigate whether survival

features such as survival probability

and survival duration are the same in

both hot-market and cold-market IPOs.

•We will study whether the

characteristics of firms that went public

in the first half of a hot market

(pioneers) differ from those of firms that

went public in the second half of the

same hot market (followers) .[ALTI

2005].

Variables

Independent Variable :COLD MARKET AND HOT MARKET.

Dependent Variables :

Survival of Firm ,Long run performance of Firm.

http://www.apjfs.org/conference/2

012/cafmFile/11-2.pdf

http://www.fma.org/NY/Papers/mark

et_volatility_IPO_timing.pdf

REFERENCES

Baker, Malcolm and Jeffrey Wurgler,

2002, Market timing and capital

structure, Journal of

Finance 57, 1-32