Posts Tagged ‘IPOs’

Securities Class Action Filings—2014 Year in Review

Posted by John Gould, Cornerstone Research, on Wednesday February 11, 2015 at 9:14 am
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Editor’s Note: John Gould is senior vice president at Cornerstone Research. This post discusses a Cornerstone Research report by Cornerstone Research and the Stanford Law School Securities Class Action Clearinghouse, titled “Securities Class Action Filings—2014 Year in Review,” available here.

Number and Size of Filings

  • Plaintiffs filed 170 new federal class action securities cases (filings) in 2014—four more than in 2013. The number of 2014 filings was 10 percent below the historical average of 189 filings observed annually between 1997 and 2013.
  • The total Maximum Dollar Loss (MDL) of filings in 2014 was $215 billion, or 66 percent below the historical annual average of $630 billion. MDL was at its lowest level since 1997.

…continue reading: Securities Class Action Filings—2014 Year in Review

Does Group Affiliation Facilitate Access to External Financing?

Posted by R. Christopher Small, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Tuesday February 10, 2015 at 9:00 am
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Editor’s Note: The following post comes to us from Ronald Masulis, Peter Pham, and Jason Zein, all of the School of Banking & Finance at the University of New South Wales.

Across the world, difficulties in accessing external equity capital create a serious barrier to the development of new firms. In developed economies, this funding gap is bridged by angel investors and venture capitalists. In emerging economies however, contracting mechanisms and property rights protections are often insufficiently developed to support substantial venture capital activity. As a consequence, little is known about new venture funding in such economies and how external financing constraints are overcome.

In our paper titled “Does Group Affiliation Facilitate Access to External Financing? Evidence from IPOs by Family Business Groups,” which was recently made publicly available on SSRN, we investigate a major source of funding support for new firms—namely, internal equity investments by business groups, especially those controlled by families, and how this facilitates access to external equity markets. Our study is motivated by the pervasive nature of business group participation in international initial public offering (IPO) markets around the world: on average, 29 percent of new issue proceeds in each country is attributable to group-affiliated firms. This raises an important question regarding the role that business groups play in assisting new firms seeking to tap public equity markets. It also raises important questions about whether ignoring the existence of business groups creates serious biases in studies of international IPO activity.

…continue reading: Does Group Affiliation Facilitate Access to External Financing?

FINRA Settles with Banks; Provides Views on Analyst Communications During “Solicitation Period”

Posted by Richard J. Sandler, Davis Polk & Wardwell LLP, on Saturday January 10, 2015 at 9:00 am
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Editor’s Note: Richard J. Sandler is a partner at Davis Polk & Wardwell LLP and co-head of the firm’s global corporate governance group. This post is based on a Davis Polk client memorandum.

In December, the Financial Industry Regulatory Authority entered into settlement agreements with a number of the major banking firms in response to allegations that their equity research analysts were involved in impermissibly soliciting investment banking business by offering their views during the pitch for the Toys “R” Us IPO (which was never actually completed). FINRA rules generally prohibit analysts from attending pitch meetings [1] and prospective underwriters from promising favorable research to obtain a mandate. [2] In this situation, no research analyst attended the pitch meetings with the investment bankers and none explicitly promised favorable research in exchange for the business. However, FINRA announced an interpretation of its rules that took a broad view of a “pitch” and the “promise of favorable research.” FINRA identified a so-called “solicitation period” as the period after a company makes it known that it intends to conduct an investment banking transaction, such as an IPO, but prior to awarding the mandate. In the settlement agreements, FINRA stated its view that research analyst communications with a company during the solicitation period must be limited to due diligence activities, and that any additional communications by the analyst, even as to his or her general views on valuation or comparable company valuation, will rise to the level of impermissible activity. The settlements further suggested that these restrictions apply not only to research analysts, but also to investment bankers that are conveying the views of their research departments to the company. The practical result of these settlements will be to dramatically reduce the interaction between research analysts and companies prior to the award of a mandate.

…continue reading: FINRA Settles with Banks; Provides Views on Analyst Communications During “Solicitation Period”

Corporate Investment and Stock Market Listing: A Puzzle?

Posted by R. Christopher Small, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Thursday November 20, 2014 at 9:18 am
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Editor’s Note: The following post comes to us from John Asker, Professor of Economics at UCLA; Joan Farre-Mensa of the Entrepreneurial Management Unit at Harvard Business School; and Alexander Ljungqvist, Professor of Finance at NYU.

Economists have long worried that a stock market listing can induce short-termist pressures that distort the investment decisions of public firms. Back in 1985 Narayanan wrote in the Journal of Finance that “American managers tend to make decisions that yield short-term gains at the expense of the long-term interests of the shareholders.” More recently, a growing number of commentators blame the sluggish performance of the U.S. economy since the 2008–2009 financial crisis on short-termism. For example, in a recent Harvard Business Review article, Barton and Wiseman, global managing director at McKinsey & Co. and CEO of the Canada Pension Plan Investment Board, respectively, argue that “the ongoing short-termism in the business world is undermining corporate investment, holding back economic growth.”

Yet, systematic empirical evidence of widespread short-termism has proved elusive, largely because identifying its effects is challenging. A chief challenge is the difficulty of finding a plausible counterfactual for how firms would invest absent short-termist pressures. In our paper, Corporate Investment and Stock Market Listing: A Puzzle?, which is forthcoming at the Review of Financial Studies, we address this difficulty by comparing the investment behavior of stock market-listed firms to that of comparable privately held firms, using a novel panel dataset of private U.S. firms covering more than 400,000 firm years over the period 2001–2011. Building on prior work, our key identification assumption is that, on average, private firms suffer from fewer agency problems and, in particular, are subject to fewer short-termist pressures than are their listed counterparts. This assumption is motivated by the fact that private firms are often owner managed and, even when not, are both illiquid and typically have highly concentrated ownership. These features encourage their owners to monitor management more closely to ensure long-term value is maximized.

…continue reading: Corporate Investment and Stock Market Listing: A Puzzle?

An IPO’s Impact on Rival Firms

Posted by R. Christopher Small, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Monday September 15, 2014 at 9:04 am
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Editor’s Note: The following post comes to us from Matthew Spiegel, Professor of Finance at Yale University, and Heather Tookes, Professor of Finance at Yale University.

An initial public offering (IPO) is a major event in the life of any firm. But what does an IPO imply for the industry’s future? In our paper, An IPO’s Impact on Rival Firms, which was recently made publicly available on SSRN, we take a structural approach that allows different industries to progress in different ways post IPO. If one is forced to make a sweeping generalization, then this paper finds an IPO augurs in an era of reduced profits and greater consumer mobility within an industry. Unlike a static model, a structural model’s parameters produce implications about magnitudes rather than just signs. This permits one to assess whether the estimates are economically “reasonable in a straightforward manner.”

…continue reading: An IPO’s Impact on Rival Firms

Securities Class Action Filings—2014 Midyear Assessment

Posted by John Gould, Cornerstone Research, on Thursday August 28, 2014 at 9:09 am
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Editor’s Note: John Gould is senior vice president at Cornerstone Research. This post discusses a Cornerstone Research report by Cornerstone Research and the Stanford Law School Securities Class Action Clearinghouse, titled “Securities Class Action Filings—2014 Midyear Assessment,” available here.

Number and Size of Filings

  • Plaintiffs filed 78 new federal class action securities cases (filings) in the first six months of 2014—13 fewer than in the second half of 2013, but slightly higher than the 75 filings in the first half of 2013. This number was 18 percent below the historical semiannual average of 95 filings observed between 1997 and 2013.
  • The total Disclosure Dollar Loss (DDL) of filings remained at low levels. Total DDL was $30 billion in the first half of 2014, 52 percent below the historical semiannual average of $62 billion.

…continue reading: Securities Class Action Filings—2014 Midyear Assessment

The JOBS Act and Information Uncertainty in IPO Firms

Posted by R. Christopher Small, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Wednesday August 20, 2014 at 9:00 am
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Editor’s Note: The following post comes to us from Mary Barth, Professor of Accounting at Stanford University; Wayne Landsman, Professor of Accounting at the University of North Carolina; and Daniel Taylor, Assistant Professor of Accounting at the University of Pennsylvania.

In our paper, The JOBS Act and Information Uncertainty in IPO Firms, which was recently made publicly available on SSRN, we examine whether the Jumpstart Our Business Startups Act (JOBS Act) increases information uncertainty in firms with initial public offerings (IPOs). The JOBS Act, which was signed into law in April 2012, creates a new category of issuer, the Emerging Growth Company (EGC), and eases regulations for EGCs to encourage initial public offerings of their shares. Specifically, the Act includes provisions that allow firms with EGC status to reduce the scope of mandatory disclosure of financial statement and executive compensation information, to file draft registration statements confidentially with the Securities and Exchange Commission (SEC), to delay application of new or revised accounting standards, and to delay compliance with Section 404(b) of the Sarbanes-Oxley Act (SOX), which relates to auditor attestation on internal controls. We find evidence consistent with the easing of these regulations increasing information uncertainty in the IPO market.

…continue reading: The JOBS Act and Information Uncertainty in IPO Firms

2014 IPO Study

Posted by Kobi Kastiel, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Thursday August 14, 2014 at 9:09 am
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Editor’s Note: The following post comes to us from Julie M. Allen, Partner in the Corporate Department and co-head of the Capital Markets Group at Proskauer Rose LLP, and is based on the Executive Summary of a Proskauer publication; the complete publication, including extensive analysis of multiple industry sectors, is available here.

Our study provides a comprehensive analysis of the 2013 US IPO market.

We examined several key aspects of IPOs, including:

  • The JOBS Act
  • Financial profiles and accounting disclosures
  • SEC comments and timing
  • Corporate governance
  • IPO expenses
  • Deal structure
  • Lock-ups
  • Sponsor-backed companies

We reviewed 100 of the 136 IPOs that priced in 2013 and met our study criteria.

…continue reading: 2014 IPO Study

Enhancing the Effectiveness of the UK Listing Regime—Implementation

Posted by Kobi Kastiel, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Sunday June 1, 2014 at 9:00 am
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Editor’s Note: The following post comes to us from Simon Witty, partner in the corporate department at Davis Polk & Wardwell LLP, and is based on a Davis Polk client memorandum by Mr. Witty, Will Pearce, Dan Hirschovits, and Victoria Kershaw.

Significant new rules to strengthen the UK premium listing regime have come into force today (The Listing Rules (Listing Regime Enhancements) Instrument 2014). The rules have been the subject of two rounds of consultation by the UK Financial Conduct Authority (“FCA”) and are designed in particular to improve the governance of premium listed companies with a controlling shareholder. Feedback on the responses received has also been published today by the FCA (PS14/8: Response to CP13/15—Enhancing the effectiveness of the Listing Regime).

We summarise the main elements of the new regime below, which are largely as proposed by the FCA in its previous consultation document (see our Client Memorandum dated November 7, 2013). Companies contemplating a premium listing will need to consider the new rules as part of their IPO process and, over the coming months, existing premium listed companies with controlling shareholders will need to implement a number of new measures to comply with the new rules.

…continue reading: Enhancing the Effectiveness of the UK Listing Regime—Implementation

Silicon Valley Venture Survey: First Quarter 2014

Posted by Yaron Nili, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Tuesday May 20, 2014 at 9:21 am
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Editor’s Note: The following post comes to us from Barry J. Kramer, partner in the corporate and securities group at Fenwick & West LLP and is based on a Fenwick publication by Mr. Kramer and Michael J. Patrick; the full publication, including detailed results and valuation data, is available here.

We analyzed the terms of 156 venture financings closed in the first quarter of 2014 by companies headquartered in Silicon Valley.

Overview of Fenwick & West Results

Valuation results in 1Q14 were very strong.

  • Up rounds exceeded down rounds 76% to 8% with 16% flat. The 68 point difference between up and down rounds was the largest since 2Q07, when the spread was 70 points
  • The Fenwick & West Venture Capital Barometer™ showed an average price increase of 85%, a significant increase from 57% in 4Q13.
  • The median price increase of financings in 1Q14 was 52%, a significant increase from 27% in 4Q13 and the highest amount since we began calculating medians in 2004.
  • Software and internet/digital media continued to be the strongest industry sectors, with life science, cleantech and hardware lagging but showing respectable results. The percentage of all financings that are for software companies has trended up in recent years, hitting 45% in this quarter.
  • The use of senior liquidation preference fell for the third quarter in a row, an indication of companies having leverage in negotiations with investors.

…continue reading: Silicon Valley Venture Survey: First Quarter 2014

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