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Can Institutional Investors Cherry-Pick Hot IPOs?

Can Institutional Investors Cherry-Pick Hot IPOs?

Ufuk Gucbilmez University of Edinburgh – Business School

March 20, 2013

Abstract: 
Using a unique set of bookbuilding data, we provide comprehensive tests of Rock’s (1986) theory of IPO underpricing. In particular, we examine whether uninformed and informed investors coexist in the IPO market. We find that alongside uninformed institutional investors who regularly participate in the IPO market, there exist informed ones who can avoid cold issues and cherry-pick the hot ones to appropriate higher average initial returns. Finally, the results tie together competing explanations of positive IPO initial returns based on the winner’s curse and the investor sentiment.

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Frank Sherman’s Horizon Coach Lines is one of the largest privately owned of its kind in North America. “You have to know how to handle 5,000 people an hour”; “We are changing the culture of Horizon from the ground up”; “We kept it asset-light”

Value Added: His bus business moves big crowds for big profits

By Thomas Heath, Monday, April 1, 6:05 AM

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Frank Sherman runs his sprawling, Sandy Spring-based special-events bus business — with its 1,250 coaches and shuttles — with military precision.

He has to when dealing with the hordes who need to board his buses at events such as technology exhibitions, Republican conventions and Major League Baseball All-Star games.

If the buses aren’t present and the line doesn’t move, people lose faith. A docile crowd can turn unruly, ruining his reputation in an afternoon.

“You have to know how to handle 5,000 people an hour,” said the 52-year-old businessman, who has been riding the bus business since he was a kid, helping his father’s tour service whisk customers to weekend trips in New York and New England. Read more of this post

In China, anger grows over abuse of street vendors; “They are no different than bandits”, the fruit vendor whose detention along with her 2-year-old daughter this month sparked much outrage

In China, anger grows over abuse of street vendors

By William Wan, Monday, April 1, 3:38 AM

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BEIJING — In a country infamous for heavy-handed officials, the government employees who harass and sometimes beat and extort money from street vendors are among the most despised.

Their official name is “chengguan,” which means city management, but the word has become slang for someone who uses excessive force to solve life’s problems.

In recent weeks, anger against the officials has reached a fever pitch as several cases of apparent abuse have been widely reported in Chinese microblogs, sparking a flood of online comments.

In a video posted online last week, witnesses say chengguan officers beat up a blind man, shown sitting in a pool of water, then took his cane, his begging cup and the change inside.

In another recent case, photos posted online show a swarm of officers roughing up and handcuffing a fruit vendor as her 2-year-old daughter cries inconsolably in the background. Read more of this post

The U.S. economy is in a bubble inflated by “phony money” from the Federal Reserve and will burst within a few years, warned David Stockman, who was budget director for President Ronald Reagan

Stockman Warns of Crash Of Fed-Fueled Bubble Economy

The U.S. economy is in a bubble inflated by “phony money” from the Federal Reserve and will burst within a few years, warned David Stockman, who was budget director for President Ronald Reagan.

In an essay published yesterday in the New York Times (NYT), Stockman wrote that the Fed’s quantitative easing policies in the aftermath of the credit crisis have flooded stock markets with cash even while the “Main Street economy” remains weak. The combination, he wrote, is “unsustainable.”

“When it bursts, there will be no new round of bailouts like the ones the banks got in 2008,” wrote Stockman, a former senior managing director at Blackstone Group LP (BX) and a former Republican congressman from Michigan. “Instead, America will descend into an era of zero-sum austerity and virulent political conflict, extinguishing even today’s feeble remnants of economic growth.”

Stockman, 66, is the author of “The Great Deformation: The Corruption of Capitalism in America,” which will be published April 2. Read more of this post

Softbank-Backed Startup SmarTots Builds Facebook for Kids

Softbank-Backed Startup SmarTots Builds Facebook for Kids

A former Nokia Oyj (NOK1V) engineer is building a private social network in China where children share art projects online with parents or grandparents. Japan’s phone and Internet giant Softbank Corp. (9984) is betting he’ll succeed.

SmarTots, Jesper Lodahl’s Beijing-based startup, began offering mobile education applications for kids from two to seven through Apple Inc. (AAPL)’s China iTunes store in June. Designed as a game center for app developers, this month it’s adding functions to allow parents to “like” or comment on projects in a layout similar to Facebook Inc. (FB)’s site, Lodahl said.

Softbank, which provided funding, and Lodahl expect growth in smartphones and tablets to drive demand for educational services. Parents’ desire to set children apart from peers is likely to drive strong demand for any service in China that can offer an edge, said Duncan Clark, Beijing-based chairman of BDA China, which advises technology companies.

“People will pay a lot for their kid’s educations,” said Clark, who doesn’t work with SmarTots. “There is a lot of spending power around educational betterment.” Read more of this post

Indonesia’s Yudhoyono Party Stumbles as Corruption Charges Undermine Support

Yudhoyono Party Stumbles as Corruption Charges Undermine Support

Indonesia’s ruling Democrat Party chose the country’s president, Susilo Bambang Yudhoyono, as chairman ahead of national elections next year amid jockeying among possible replacements that could stall spending on roads and ports. Yudhoyono was elected March 30 at an extraordinary congress in Bali to succeed Anas Urbaningrum, who resigned after becoming at least the third senior party official linked to corruption allegations in less than two years. Read more of this post

Keeping debt a dirty secret from investors

Keeping debt a dirty secret from investors

PUBLISHED: 28 MAR 2013 00:33:00 | UPDATED: 29 MAR 2013 00:31:10

CHRISTOPHER JOYE, The Australian Financial Review

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Ask yourself this question: is the amount of debt a company assumes, the rate of interest it pays, the events of default, the repayment date and all non-standard conditions (or “covenants”) vital to working out the value of that company’s equity? Any half-witted analyst or investor will emphatically answer “yes”.

Yet when I ask Damian Reichel, a partner at law firm Johnson, Winter & Slattery whether it is standard practice for companies listed on the Australian Stock Exchange to disclose all the terms and conditions of their debt arrangements, he responds: “No, it’s not standard at all. It is, however, normal to disclose the amount of debt outstanding in the company’s accounts and maturity dates so that people know when facilities expire.”

This is a problem that weighs heavily on the minds of sophisticated investors, analysts and even some regulators. While market convention is to disclose little information about a company’s leverage, it is vital to determining its equity value, even if lay retail investors tend to ignore it.

If a company’s capital structure is comprised of debt and equity, it is impossible to price one in isolation from the other. Debt directly subordinates equity in two ways: first, it has a prior-ranking entitlement to the company’s earnings for interest repayments; second, debt ranks ahead of equity if the business is wound up.

The introduction of debt into a capital structure exposes shareholders to new risks. And individuals and companies default on their obligations all the time. When they do, the lender has the right to force asset sales at prices often far below fair value, which inflicts losses on those standing last in the queue – shareholders. Read more of this post

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