This page is hosted by Ivo Welch, a
professor of Finance at Yale.
IPO - The Initial Public Offerings (IPO) Resource Page
October 1996, Updated January 1999, January 2000
for a bibliography of work on IPOs.
© Ivo Welch, 1996. This document is for the free use of all interested
parties. However, this document must not be distributed, except in its
entirety. Computer printouts are permitted, but further copies of printouts
are not. Computer WWW references/links are expressly permitted. This site
is listed at www.yahoo.com. The author
is not liable for any false or misleading information in this WWW page.
Table of Contents
- Should The Company Go Public?
- Alternative Sources of Capital
- Is the Time Right To Do an IPO?
- What Advisors Should The Firm Hire?
- Program/Bibliography: Find an appropriate advisor.
- What Should the Offer Price be?
- Company Valuation
- The Road-Show
- Program/Bibliography: Find an appropriate P/E ratio.
- How Does The Market React to IPO's?
- The Short-Run IPO Underpricing
- The Long-Run IPO Underperformance
- Other Noteworthy Aspects
- Appendix 1: Bibliography and Research Resources
- Appendix 2: Purpose of this page
This WWW page provides information on initial public offerings (IPO's). It
is a first draft. To read more about the philosophy guiding this page,
please read Appendix 2.
Should The Company Go Public?
- New Capital
- Almost all companies go public primarily
because they need money. All other reasons are of secondary importance.
The typical (firm-commitment) IPO raises $20-40M, but offerings of $100M
are not unusual either. This can vary widely by industry. Some basic
facts about the IPO market can be found in Table 1.
- Future Capital
- Once public, firms can easily go back to
the public markets to raise more cash. Typically, about a third of all IPO
issuers return to the public market within 5 years to issue a "seasoned
equity offering" (the term secondary is used to denote shares sold by
insiders rather than by firms). Those that do return raise about three times
as much capital in their seasoned equity offerings as they raised in their
- Cashing Out
- Although it is a bad signal to investors
when an entrepreneur sells his own shares (indicating that [s]he is jumping
ship), it still makes sense for many entrepreneurs to cash out some of their
wealth to diversify or just to enjoy life.
- Mergers and Acquisition
- Many private firms just do not
appear on the "radar screen" of potential acquirors. Being public makes it
easier for other companies to notice and evaluate the firm for potential
- Public firms tend to have higher profiles than
private firms. This is important in industries where success requires
customers and suppliers to make long-term commitments. For example,
software requires training and no manager wants to buy software from a firm
that may not be around for future upgrades, improvements, bug fixes,
etc. Indeed, the suppliers' and customers' perception of company success is
a self-fulfilling prophesy.
But public firms also tend to be larger to begin with, and this
may explain why public firms on average have a better image. For example,
although Gateway is private, there is no question that it will be
around for a while. Going public would not aid increase its sales. The
important question is if going public improves the firm's
stakeholders' perception of success.
- Employee Compensation
- Having a public share price makes
it easy for firms to give employees a formal stake in the company.
- If the firm is sitting on a gold-mine,
future gold has to be shared with outsiders. But if the price is right,
this is worth it. After the typical IPO, about 40% of the company remains
with insiders, but this can varies from 1% to 88%, with 20% to 60% being
- Loss of Confidentiality
- A major reason why firms may not
receive the right price is that firms are unable to convince investors that
there is a gold in the mine. For example, it could destroy the business if
the company were to disclose its technology of profitability to its
- Reporting and Fiduciary Responsibilities
companies must continuously file reports with the SEC and the exchange they
list on. They must comply with certain state securities laws ("blue sky"),
NASD and exchange guidelines. It costs money and discloses information to
- Loss of Control
- Outsiders often could take control and
even fire the entrepreneur. Now, there are effective anti-takeover
measures, but what investor wants to pay a high price for a company in which
poor management could not be replaced?
- IPO Expenses
- An IPO is a costly undertaking. A
typical firm may spend about 15-25% of the money raised on direct expenses
(detailed in a later section.). Even more resources
are spent indirectly (management time, disruption of business).
- Immediate Cash-out Usually Not Permitted
- Typically, IPO
entrepreneurs face various restrictions that do not permit them to cash out
for many months after the IPO.
- Legal Liability
- All IPO participants in the coalition
are jointly and severally liable for each others' actions. In practice,
this mean that they were routinely sued for various omissions in the IPO
prospectus when the public market valuation fell below the IPO offering
price. Congress recently passed (overriding a presidential veto!) The
Private Securities Litigation Reform Act of 1995. The Act protects
disclosure of firm projections, and (to the best of my knowledge) forced the
suing shareholder to have a substantial participation in the firm. (This
prevents "professional class action plaintiffs.") Although nothing can
eliminate law suits, the Act reduces the likelihood of successful
suits and thus influences settlement terms.
- Define The Need for Money
- Companies that do not know
what to do with the money are lousy investments. Consequently, their shares
are not easy to sell. If there is a specific need for capital, it needs to
Before a company can sell itself to outside investors, it must put it
affairs in order and present an appropriate face to investors. This cannot
be done in a month or two: it needs long-standing planning. Here are some
of the most important aspects:
- Credible Management and Board of Directors
Andreessen of Netscape is a terrific technology expert, but without a
credible investor/manager like Jim Barksdale as CEO and president, he would
not have had a prayer to raise IPO funds. A good product alone does not
make a good company. It's all about marketing and sales, not about
technology. Investors want to see investment returns, not gadgets.
- Credible Advisors
- Like credible management, credible
experts (underwriters, auditors, lawyers) are necessary to assure investors
that their money is well-spent. In addition, credible, neutral advisors
to evaluate the relationship between the firm and the experts help.
- Record Keeping
- Companies need to require audited
financial statements for the last three years before they can go
public. (This is an SEC rule, but even if it were not, investors would be
reluctant to invest in companies failing to supply this information.) These
need to be provided separately for each significant (>20%) unconsolidated
subsidiary. If it is expensive and time-consuming to produce audited
financial statements annually, think about how much more expensive it would
be if they had to be produced three years later! Important: the firm
is legally liable for the information it provides. Any existing, operating
company planning to go public in a few years should begin to produce
financial statements in accordance with GAAP. It will pay off!
- Clear up Property Rights and Contractual Agreements
Ambiguous relationships between the company and insiders (managers,
entrepreneurs) or outsiders (suppliers, customers) raise a red flag. If the
entrepreneur has other businesses, what is the relation between them? Are
investors assured that profits created by the firm/entrepreneur will go to
- Public Relations
- IPO firms have two sets of customers:
those buying products and those buying shares. Sometimes the two are the
same. For example, in preparation of its upcoming IPO, Deutsche
Telekom heavily advertised on TV to both its customers and potential
share buyers. It is important for entrepreneurs to talk not only to their
customers, but also to the investment community.
- Business Plan
- A good business plan is a selling tool to
both advisors (ranging from VCs to investment bankers to other clients) and
outside investors. Most of the information in the business plan is of
immediate relevance to the IPO prospectus. Having a good business plan
significantly shortens the time required to produce an IPO prospectus.
- Earnings Management
- Earnings should show a systematic
up-trend. Earnings can be legally managed--Accounting Principles Board
Opinion 20 allows IPOs to restate their financials to look good for an IPO.
It makes no sense to accelerate earnings recognitions two years before an
offering and "pay for" it in lower earnings in the recently reported
earnings read by investors just before the offering. GAAP permits firms to
take reasonable accruals, to recognize earnings either before or after the
physical cash has come in. A firm that does not manage its earnings
appropriately is throwing the entrepreneur's money away!
Alternative Sources of Capital
- Venture Capital (VC)
- About ??% of IPO
issuers are financed by VCs before they go public. This varies by industry;
it can be as high as ??% for firms in such industry as
biotech. In general, VCs finance companies that are smaller and at an
earlier stage than IPO firms. They prefer high-risk high-return
investments. (The typical VC fund offered a return of
??% in the ??- ??
period. Most VCs "cheat" [legally] when they state their returns. This is a
long topic in itself) But VCs also take an active interest in the firm's
management: on the plus side, this provides the firm with additional
management expertise, industry expertise, and financing expertise. Many of
the best hi-tech companies would have long since ceased to exist without
venture capital. On the minus side, VCs are expensive. They take a large
chunk of the firm, and often acquire "control," which permits them to fire
management or sell the firm altogether. (Details on venture capital and
private funding can be obtained from Josh Lerner's WWW page at http://www.people.hbs.edu/jlerner/vcpe.html.)
- Private Placements and Limited Offerings
- If the firm or
its financial advisor have access to interested high net worth individuals
and the publicity of an IPO is not important, this is an excellent
alternative. Unlike Venture Capitalists (VCs), private investors typically
play a smaller role in the management the company. This can be good or bad,
depending on the firm.
- Bank and Finance Companies
- This works better than
IPO's for stable, profitable, non-growth firms that can provide
collateral. (An important, sometimes overlooked source of financing can be
collateralization of receivables.)
- This avoids initial outlays (a sale-leaseback can often be
used when the property is already owned). Further, small growth companies
often do not have the profits to get immediate use of tax depreciation
allowances. Leasing firms can use these tax advantages and will pass on
this benefit through lower lease rates directly back to the firm (provided
there is enough competition among leasing firms).
- Government Loans (Small Business Loans)
- Thanks to Bill
Clinton, the federal Small Business Administration (SBA) is experiencing a
renaissance. If the firm or its advisors have the stomach (experience) for
government redtape and the appropriate connections, this is a great way to
get some tax dollars back. More information can be found at http://www.sec.gov/smbus1.htm.
- Unregistered Public Offerings (Regulation A) and Intra-state
- These are special forms of IPO's. Requirements are
less formal. My advice: try to avoid them. They often are not worth the
effort. If you must, more information about the specific regulations can be
- Funds from Partners
- The firm's suppliers and customers
know the firm's potential better than unaffiliated investors, and may be
amenable to become investors. Because they have better information than
outside investors, they should be willing to provide the firm with funds on
better terms. They also have something to loose: the firm's business.
(Trade credit is a less direct form of investment by partners, more similar
to a debt than an equity investment.)
Is the Time Right To Do an IPO?
There are clear "windows of opportunity" that open and close for IPO
issuers. For example, immediately after the 1987 crash, almost all pending
IPO deals were cancelled. Most of what determines suitability are
There is a 3-6 months lead time between starting the IPO process and going
public. So, the firm needs to forecast the market conditions 3-6 months
later. Luckily, for such short-run purposes, stock returns behave almost as
if they follow a random walk. So, it is not a bad guess to make decisions
about going public based on current stock market conditions.
So, how are market conditions right now?
- The General Stock Market Condition. (e.g., a Dow-Jones Index)
- The Industry Market Condition. (Best measured by a relevant, self-constructed index.)
- The Frequency and Size of All IPO's in the financial cycle.
- The Frequency and Size of Industry IPO's in the financial cycle.
Current Market Conditions
|To be filled in.|
It is important for entrepreneurs to hire someone independently who
understands IPO's, preferably someone who understands IPO's in
the same industry. Auditors, lawyers, and underwriters all have interests
conflicting with the entrepreneur's interests. The auditors want to make
sure they do not get sued and bill as many hours as possible. The lawyers
want to never state anything in writing for which they can later be held
liable, and also be paid as many hours as possible. The underwriters want
to do "the deal" under conditions as favorable to them as possible, including
pricing the offering low so as to minimize their necessary selling effort.
When negotiating with the underwriter, it is imperative that the firm runs
the numbers itself first!
This is not to say that experts are typically dishonest. Indeed,
entrepreneurs need to build up mutual trust with their advisors to
succeed. But at the same time, they should protect their own interests. An
independent consultant can guide the appropriate selection, compensation,
and behavior of other experts. The consultant should not be
recommended by other experts: it is the consultant's job to advise the firm
how to work with the other experts. A cozy relationship between advisor and
other experts can bias the consultants' decision-making process. (Remember:
after the IPO, the consultant will get little new business from the
entrepreneur--but [s]he can get a lot of business from other IPO
It is astonishing how rarely independent advisors on relationships with
IPO experts are retained by entrepreneurs, and how frequently independent
advisors on relationships with IPO experts are retained by lawyers in law
suits between firms and their former advisors lateron.
Auditors are highly concentrated. The top 6 auditors (Ernst and Young,
Arthur Anderson, Coopers and Lybrand, Deloitte and Touche, KPMG, Price
Waterhouse) control about 90% of the IPO market (by dollar volume and
roughly in the quoted order). So, the choice is easy: choose one of the
Big-6. It helps getting the appropriate credibility with investors.
The cost of auditors' services in the typical IPO ranges from $1K to
$2M, with most firms paying between $100K and $300K. (Mean/Median/Stddev.
were about $170K/$130K/$175K in 1990-dollars for 960 issuers in the
1992-1994 period.) Clearly, auditor cost varies mostly by firm size and
age: more complex and older operations require more auditing. Offerings
below $10M typically pay $50-100K, offerings above $100M typically pay
Lawyers are basically advisors. They typically are not
liable/responsible. Their role is to make sure that documents conform to
legal standards, and that participants are properly indemnified. Although
there are a few law firms that are expert for IPO's (and in a
particular field), there are many more reasonable choices for legal services
than for auditing services. Worth mentioning are Skadden Arps, and
Wilson-Sonsini (computer industry expertise), but there are many other
The cost of legal services in the typical IPO ranges from $5K to $2.5M,
with most firms paying between $150K and $400K. (Mean/Median/Stddev. were
about $255K/$202K/$175K in 1990-dollars for 960 issuers in the 1992-1994
period.) Offerings below $10M in size typically pay $100-200K, offerings
above $100M typically pay $500K-700K.
The most important choice is the underwriter. The underwriter is the
principal player in the IPO, providing the firm with
- Because the underwriter is legally liable and
because the underwriter has ongoing dealings with the customers to whom he
sells shares, the underwriter puts his reputation on the line.
- Finding Investors
- The underwriter first puts together a
syndicate of other underwriters to distribute firm shares. The syndicate
finds investors willing to put their money into the company. This has
serious implications: Will the new investors be institutional or private?
Is the company widely held or are shares concentrated with just a few
investors? Will there be a lot of trading in the company in the
aftermarket, or will there by long-term investors?
- The underwriter knows the details of the
process better than any other participant--unlike other participants,
issuing shares is one of their primary business functions. Underwriters are
the ones to provide proper guidance.
- Aftermarket Support
- For 30 days after the offering, a
good underwriter provides price stabilization. This protects
investors and makes the offering more attractive. It is important
for the firm to have a clear understanding with the underwriter exactly
how much support he/she plans to provide.
- Future Services
- The underwriter often provides post-IPO
analyst coverage and market-making services. Most successful IPO's
return to the market to do a seasoned equity offering. A good relationship
with an underwriter can save time and money in future offerings.
- Pre-Offering Sales
- The underwriter will conduct
road-shows with the company's management, distribute the preliminary
prospectus, and talk to potential investors about appropriate pricing. Some
part of the value potential shareholders attach to shares is directly
generated by the marketing of the underwriters itself.
The services of good underwriters do not come cheap, however. Most
IPO's pay a flat 7% of the offering size to the underwriter, plus
they grant an overallotment ("green shoe") option, and on occasion pay
significant legal expenses on top. (The entrepreneur should make sure to
negotiate a cap.) Underwriters may request the right of first
refusal to do future public offerings, but it is advisable for issuers
either not to agree or to limit this right to 2-3 years. Also, underwriters
prefer lower prices: lower prices make selling shares a lot easier, and
allow the underwriter to reward his/her best customers by giving them share
allotments. In a sense, pricing that is too low is an expense that an
entrepreneur should factor into the costs of underwriting.
It is a good idea to solicit presentations from several investment
banks. Professional underwriters understand that this is common business
A (non-binding) price range is usually indicated in the preliminary
prospectus, but the actual price is decided on the day before the
IPO. Similarly, the scale of the offering (the number of shares) is
decided on the first day. Entrepreneurs should not sell too many
shares (for IPO's are unusually expensive to conduct), but selling
too few shares may limit the market liquidity and reduce the appeal to
investors. It is of paramount importance that investors know the worth
of their shares and the appropriate issuing size when negotiating with the
underwriter for the appropriate price!
Virtually all reputable IPO's in the United States are done via
firm-commitment offerings, in which the underwriter guarantees that
the shares will be sold. Both investors and reputable firms should stay
away from best-efforts offerings, in which the underwriter is only an
agent on behalf of the firm. This is not because the contract is
intrinsically bad; instead, it is because no other reputable firms and
underwriters seem to use it.
Among the 960 issues in the 1992-1994 period, the lowest underwriter
compensation was 4% of the offering, the highest about 12%--but almost all
offerings were between 5% and 9%. Offerings raising less than $10M paid
about 7-9%, offerings raising more than $100M paid about 5.5-6.2%. The top
underwriters were Goldman Sachs Merill Lynch, and Morgan Stanley, all of
whom specialized in large size IPO's.
Choosing the right printer used to be of importance in the past. But with
printing costs down and advanced printing technology inhouse in most firms,
this is no longer an important choice.
Tables: Find an appropriate advisor.
contains expert (underwriter/lawyer/auditor) compensation and ratings up
until the end of 1994.
|To be filled in. |
What Should the Offer Price be?
This should be of paramount concern to issuers: how much to charge for
giving away a part of the firm. There are basically three methods that should
- Net Present Value.
- Earnings/Price or Cash-Flow Ratios.
- Various Other Ratio Analysis.
It is important  to adjust appropriately for the effects of leverage,
and  not to ignore the value of strategic options (sometimes called
real options; these include such items as potential future spin-offs,
timing abilities, etc).
"Typical" P/E ratios are difficult to come by. They need to be tailored
appropriately to each offering. Note that earnings can be negative, and
thus it makes no sense to average P/E ratios. They need to be "adjusted"
appropriately. Here are some suitable values:
The road show allows firms to raise interest in the company and thus the
price. It allows the firm and its underwriters to gather information from
Program/Bibliography: Find an appropriate P/E ratio.
How Does The Market React to IPO's?
The Short-Run IPO Underpricing
One of the big puzzles in finance is why the typical IPO underpricing (that
is, the return from the offering price to the price when the market starts
trading) is about 10%. Think about it: where else can an investor systematically
make 10% in one day on average?
The academic consensus is that there are a number of reasons why issuers
leave so much money on the table:
- The Winner's Curse
- If you are an investor who is asking
for an allocation of 1,000 shares, and there are two IPO's. One is
overpriced, the other is underpriced by 20%. Do you get out even? Probably
not. When the offering is overpriced, few other people will have asked for
shares and you typically get all 1,000 shares. When the offering is
underpriced, half the world will have asked for shares, and you typically
get shares only rarely. (It gets even worse when underwriters give the
"good shares" only to their friends, and you are not one of them.) For the
sake of argument, assume you get shares only half the time. Then, your
expected return on these two offerings would be
50%*(+20%) + 100%*(-20%) = -10%
Consequently, an investor who participates in an offering that is just
fairly priced is likely to make a negative return and thus would not wish to
participate. To get investors to participate at all, issuers must set a
lower price for the IPO. It will look as if the average IPO
left money on the table, but the typical investor cannot profit from this
money. (This is not the case in the reasons described below, where investors are
presumed to get a bargain.)
- A Good Taste In Investors' Mouths
- Issuers like to donate
some money to investors. They will want to come back to investors later for
more funds, and those investors will remember if they got a good or a raw
deal at the IPO.
- Underpricing is necessary to solicit
information from investors about potential interest. Why would investors
tell underwriters that they like an offering, unless they knew that if they
told the underwriters that they liked it, the underwriter would give them
more shares for a better price.
- If one important investor defects, maybe all
investors will follow. (This is sometimes called a "herd mentality.") To
make sure the important first investor does not defect, it is better to play
it safe, and leave too much money on the table.
- Legal Liability
- (This is no longer as important, because the recent
??? Act has significantly reduced issuers' legal liability.) Investors
tended to sue when shares where ex-post overpriced, because IPO's were
subject to unusually strong liability. Being 10% underpriced reduced the
probability that IPO prices would soon drop below the offering price.
- This reason concentrates on the conflict between
investors and underwriters. Because underwriters prefer to work less,
especially when the price is high which makes selling painful, it is best to
make selling a little easier for them and underprice the offering.
- The issuer cares more about who to place shares with than
what the price is. By giving shares at a bargain price, the issuer can pick
The Long-Run IPO Underperformance
In the long-run, IPO shares have significantly underperformed to the tune
of 30-50% below comparable companies over 3-5 years. This does not detract
from the IPO underpricing puzzle--after all, a first-day investor can sell
soon after the IPO and realize the immediate IPO underpricing.
This long-run underperformance of issuers (and it also applies to
seasoned equity issues) is one of the major puzzles of finance today. Why
would anyone be willing to hold shares in companies that are risky and that
can systematically barely beat the rate on safe treasury bonds? Ultimately,
the answer is related to irrational investor behavior.
The two most prominent explanations of this long-run underperformance are
that firm managers are smarter than the market and are thus good at
timing--with some managers issuing only because conditions are not right,
not because they need the money--and that firm managers (legally)
manipulate earnings, so as to look as best they can at the time of the
offering. Investors may be disappointed lateron, but it is too late--they
have already invested their funds. Again, within limits, this can be done
legally (within appropriate limits, of course), and it is indeed common
If you are an investor who wants to invest for the long
haul, avoid portfolios of firms having recently conducted an equity
offering. At least, do some research to determine if the firm had unusually
high accruals, i.e., made its earnings look better than they actually
Other Noteworthy Aspects
These are best to be gathered from experts that do IPO's day-in day-out.
Here are a few random notes:
- Holdup and Lockup Periods: Read a short email exchange between Ken
Glowacki and the SEC: holdups.txt.
- The SEC is rapidly overhauling its filing system. It is being
computerized, and as a result, historical experience is no longer as
valuable as recent dealings with the SEC.
- From conception to execution, IPO's typically take about 3 to 6 months
if well prepared. About half-way through, the registration statement should
have been written and filed with the SEC. The following 4 to 6 weeks
typically are taken by road shows. Thereafter, the final revisions and
offer price and date need to be set.
- What should be in the prospectus? What should be in a good business
This is best figured out by looking at other business plans and recent
IPO prospecti. Much of this is almost boilerplate. The prospectus should
contain such items as information about
- The Deal (number of shares, offering price, expert participation and compensation,
distribution, method of offering, uses of proceeds, dilution and ownership, etc.).
- The Company (the sellers, management, control, current capitalization, historical financial data, patents,
employees, crucial dependencies, etc.).
- The Market Opportunities.
- The Industry (products, competitors, markets, etc.).
- The Risks (business, legal, financial).
- The Management's Analysis.
- The SEC offers a question and answer WWW page for businesses that want
to go public at http://www.sec.gov/smbus/qasbsec.htm
Appendix 1: Bibliography and Research Resources
- Edgar is an on-line
repository of recent corporate SEC filings.
- A list of recent and forthcoming offerings can be found in http://www.sec.gov/news/digests/.
- Similar information can be found at InvestorWeb.
- Securities Data Corporation (SDC) codes information in corporate
financial offerings in a systematic fashion, suitable to analysis by
statistical means. SDC can be reached at (201) 622-3100.
- Jay Ritter's IPO Data
Base is a very detailed data base of information about 1975-1994
IPOs that can be freely downloaded for academic research.
- Initial Public Offerings: Insider Holdings at
the IPO Data Base is a data base of holdings of IPO insiders listed on
selected IPO prospectuses.
- The enclosed bibliography of ipo resources IPO Bibliography
contains a bibliography of IPO and VC related articles. To facilitate an
easier overview, I have color coded the entries. The Journal of
Finance, Journal of Financial Economics, Review of
Financial Studies, Journal of Political Economy, and the
American Economic Review have the highest selectivity and tend to
publish the best and most influential academic work. They are displayed in
large font. The Journal of Financial and Quantitative Analysis,
Journal of Banking and Finance, Financial Management also
publish high-quality academic work, but the average article (not every
article!) tends to be of slightly lower quality. Articles published in
these journals are displayed in a smaller,
grayed font. Articles published in the top three accounting journals
(Journal of Accounting and Economics, The Accounting
Review, Journal of Accounting Research) are of similar quality
as those published in the top economics/finance journals, but tend to be
more specialized in focus. They are displayed in a smaller different gray font. Articles published in
the Journal of Applied Corporate Finance and the Financial
Analysts Journal, are geared towards practitioners, and are thus often
expository and easier to read. (Many researchers publish understandable
versions of their sanskrit academic publications in these journals.) Such
publications are displayed in a smaller blue
font. Finally, other journals' publications are coded in the lightest gray font. Because the
refereeing process is noisy, the interested reader can find some very good
work in these journals, too.
- D.H. Blair has an interesting WWW page: http://www.dhblair.com/ipo.html.
- A teaching case about an IPO by a small leather apparel producer (GIII)
in late 1989: http://welch.econ.brown.edu/giii
- There are always the WWW Search Engines:
The purpose of this resource page is to provide a basic summary of the
principal issues facing IPO market participants and researchers. This
synopsis is supposed to be accessible to novices and to be a reference to
Business information can be loosely classified into three forms:
institutional, academic and case-oriented. Good
information (and hopefully this page eventually) draws on all three forms.
Sometimes, the academic and case-oriented approach are
(mistakenly) perceived to be conflicting. But each have their unique
strengths. The advantage of the academic approach is that it draws
its insights primarily from the analysis of many firms. Such insights tend
to be more "universal"--how else can one know if a particular case was an
unusual one-time experience? Further, typically being based on publicly
accessible data, academic studies are reproducible/checkable by third
parties--how else can one know that an expert's account is appropriate and
objective? Which expert should one believe in? The advantage of
case-oriented studies is their access to more detail, that is often
lost in the need to analyze thousands of firms. Further,
case-studies provide an invaluable aid to explain and understand the
real-world nature of the problem at hand.
This WWW page favors the academic approach. It emphasizes
empirical regularities that I consider to be reproducible, robust, and
universal. I had to exercise some judgment, but it is are based on a decade
of research experience in the IPO area. Another caveat is that some
information provided here has not been published. Other information would
be unsuitable for publication, because it is educated speculation. I will
attempt to indicate this to the reader. At the same time, to preserve
readability, this synopsis does not attempt to systematically cite/give
credit where credit is due. A bibliography of relevant IPO publications is
linked to this page, as is a bibliography of experts and resources to IPO
Most of what follows is based on U.S. IPO's, excluding such
special cases as REITs, bond or closed-end funds, or equity carve-outs (see
the bibliography for some basic references). The role of venture-capital
and private funding, a large topic in itself, is not covered in the detail
it deserves, but a separate bibliography is included. I would like to point
the interested reader at http://www.people.hbs.edu/jlerner/vcpe.html.