Types of issuance: IPO, SEO Why go public? Why not go public? IPO process Syndicates: – Potential functions – Actual functions – Syndicates and effort Equity underwriting 3
Underpricing – Facts – Principal agent theory – Information revelation theory – Winner’s curse – Institutional explanations – Ownership and control – Stock-flipping – Long-run performance Equity underwriting 4
The underwriting spread – How high is the spread – Costs of underwriting for IBs – Are the spreads justified? Fee structure inconsistent with the existence of fixed costs No price competition High spread in the US Efficient contracting hypothesis Industry concentration, entry Justice department probe US banks add value Equity underwriting 5
Role of IB: more about selling and structuring than pricing Pricing of government bonds Corporate bonds – Default risk – Call provision – Convertible bonds Debt underwriting 6
Forward vs. spot rates Interpreting the yield curve Interpreting corporate bond yields: what is the probability of default? Term structure of interest rates 7
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