12 - Chapter 15: Raising Capital FINA1003 Corporate Finance...

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FINA1003 Corporate Finance Faculty of Business and Economics University of Hong Kong Dr. Tao Lin Chapter 15: Raising Capital 1
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Topics Covered Selling Securities to the Public: Basic Procedures Benefits and Costs Issuing Methods Issuing Costs IPO Underpricing Puzzle SEO Puzzle 2
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Selling Securities to the Public Permission from the Board of Directors. Registration statement with the SEC. SEC examines the registration during a 20-day waiting period. Securities may not be sold during the waiting period. The price is determined on the effective date of the registration. 3
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Potential Benefits Improve access to capital market Increase liquidity of manager/entrepreneur wealth Generates positive employee compensation incentives Builds firm credibility with customers and employees Exposes management to public scrutiny 4
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Potential Costs Consumes company resources Reveals information to competitors Exposes management to public scrutiny (forces management to emphasize short-run over long-run performance) 5
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Issue Methods Best Efforts Private Direct Placement Public Firm Commitment Cash Offer Direct Rights Offer Privileged Subscription Standby Rights Offer Shelf Cash Offer Dutch Auction Underwriting 6
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Underwriters Services provided by underwriters Formulate method used to issue securities Price the securities Sell the securities Price stabilization by lead underwriter Syndicate group of investment bankers that market the securities and share the risk associated with selling the issue Spread difference between what the syndicate pays the company and what the security sells for in the market 7
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Firm Commitment Underwriting Issuer sells entire issue to underwriting syndicate The syndicate then resells the issue to the public The underwriter makes money on the spread between the price paid to the issuer and the price received from investors
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This note was uploaded on 05/11/2011 for the course BUSI 1003 taught by Professor Cyc during the Spring '11 term at HKU.

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12 - Chapter 15: Raising Capital FINA1003 Corporate Finance...

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