chapter 3 - Bodie Kane Marcus Essentials of Investments...

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Essentials of Investments Bodie • Kane • Marcus Chapter 3 Securities Markets
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Essentials of Investments Bodie • Kane • Marcus How Firms Issue Securities The new issues of stocks, bonds, or other securities in the Primary Market. Two Types of New Common Stock Issues IPOs (Initial Public Offerings): The first sale of common stock to the public. Seasoned New Issues: New stock offered by firms that already did IPOs. Two Types of New Bond Issues Public Offerings: The sale of the bond to the public Private Placements: The sale to a few investors, which is generally held until maturity
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Essentials of Investments Bodie • Kane • Marcus Investment Banking Arrangements Public offerings of stocks and bonds: Typically marketed by a syndicate of investment bankers Two Typical Underwriting Arrangements Underwritten: Firm commitment – Underwriters purchase securities from the firm and resell them to the public; Underwriters assume the full risk that shares cannot be sold to the public at the offering price; More common for common stocks. Best Efforts: No firm commitment – Underwriter just acts as a intermediary between the public and the firm.
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Essentials of Investments Bodie • Kane • Marcus Investment Banking Arrangements Two ways that corporations engage investment bankers Negotiated Issuing firm negotiates terms with investment banker More common. Competitive bid Issuer structures the offering and secures bids. In addition to the spread between purchase price and public offering price, investment bankers may receive securities of the firm .
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Essentials of Investments Bodie • Kane • Marcus Public offerings: Registered with the SEC and Marketed to investing public. Shelf registration Firms can register securities (only corporate bonds in Korea) and gradually sell them for two years (one year in Korea) following the initial registration. Securities can be sold on short notice with little paperwork. Securities can be sold in small amounts without incurring substantial flotation costs. Evidence of Underpricing Evidence of Long-term Underperformance Initial Public Offerings
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IPO by 724 Solutions Inc. (Nasdaq) Canadian Internet Services Firm Filing Date: 11/2/1999; Pricing Date: 1/27/2000 First Trading Date: 1/28/2000; 1998 Net Income: Loss of $1,100,000 IPO Price: $26 First Day Opening Price: $75.25; First Day Closing Price: $71.81 Price Later: $18.50 (1/2002), $4.50 (1/2003) Other Examples Theglobe.com 11/1998$9 $63.50 11/1999 $11.06; 11/2000 $0.38 VA Linux 11/1999 $30 $239.50 11/2000 $8.19; 11/2001 $2.6 7
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Essentials of Investments Bodie • Kane • Marcus Non-conventional Low-cost IPOs Low cost IPOs for small firm and retail investors. Internet IPOs (1995 Spring Street Brewing)
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This note was uploaded on 12/13/2011 for the course MANAGEMENT 103 taught by Professor Mr.singh during the Spring '11 term at Aristotle University of Thessaloniki.

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chapter 3 - Bodie Kane Marcus Essentials of Investments...

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