... out at the Forschungslabor für Experimentelles Bauen (Building Research Laboratory) of the University of Kassel, Germany, on the ... Ecuador and Chile. Using locally available building materials as well as the skills of local craftsmen should be considered for the ...
Story - antoq - 11/01/2010 - 06:20 - 0 comments - 0 attachments
Research on initial public offerings (IPOs) generally suggests that company performance deteriorates after going public. For example, Aggrawal and Rivoli (1990) find that IPO long-run performance is worse than the market performance. They argue that the IPO long-run under performance may be result from fads or speculative bubbles in the early aftermarket stage. Ritter (1991) and Loughran and Ritter (1995) document that IPOs in the U.S. under perform significantly relative to non-issuing matching firms for three to five years after the listing date. Loughran, Ritter and Rydqvist (1994) even consider the IPO under performance is an international phenomenon. Many researchers have also documented a long-run decline in firms’ post-IPO operating performance. Jain and Kini (1994 and 1995), Mikkelson, Partch and Shah (1997) and Pagano, Panetta and Zingales (1998) have done so for the U.S. market. They indicate that long-run return performance is also accompanied by poor accounting performance post-IPO relative to pre-IPO performance and/or industry conditions. The received wisdom is that IPO firms tend to perform poorly after the offerings in the operating respect.
This study conjectures that earnings management behavior during lockup is crucial to the pattern of aftermarket operating under performance. The lockup ensures that the insiders wealth is connected to the fortunes of the IPO firm for a regulated period of time, and thus prompts insiders to overstate their profitability in lockup period by engaging earnings management (Teoh, Wong and Rao, 1998; Huang and Lin, 2007). In addition, Teoh et al. (1998) and Teoh, Welch and Wong (1998a) document significant positive discretionary accruals (DA) in the IPO year and the following year. Both the insiders incentive to preserve investors confidence in the newly established firm and the evidence of post-issue earnings management motivate the hypothesis that stock lockup plays an important role in explaining the pattern of post-issue deterioration in operating performance.
Since the late 1980s (Grossman & Hart, 1986; Hart & Moore 1989), there has been a considerable growth in the literature known as incomplete contract theory (ICT). This literature sets about formalising and extending some of the insights from transaction cost theory (Williamson, 1975, 1985; Klein et al 1978). These include the ideas: that parties to trade fear opportunistic behaviour in the presence of specific investment; that insufficient contractual safeguards can result in inefficient levels of such investment; and that the avoidance of such inefficiencies provides a key element in the theory of the boundaries of the firm. Two assumptions are axiomatic of ICT. The first closely follows transaction cost theory (TCT) in that many important investments are observable ex post by economic agents close to a trade, but they are not verifiable in a court of law. In the jargon, they are not contractible. In particular, a contract cannot condition prices (or anything else) on ex post investments. The second is that parties to a contract cannot prevent themselves from renegotiating the terms if it is mutually beneficial to do so (Hart & Moore, 1988). Anticipating this, the parties use the contract in the context of an effective legal system to frame these renegotiations.
The name, incomplete contract theory suggests that the theory's main concern is to consider the limitations of contracts that fail to specify not only investment levels, but also many of the other contingencies that a complete contract might wish to include in an Arrow-Debreu world. The reason for this failure might be due to bounded rationality such that some contingencies cannot be imagined, or to the cost of writing complex contracts. The theory might then ask, for example: how efficient are simple contracts that can specify, at most, only one price, one product specification and one quantity? An efficient contract is one that gives the optimal incentives for both investment and trade. This characterisation of the approach suggests a fairly ad hoc limit on the ability of rational agents to write contracts. However, in practice, much of the literature has avoided this potential criticism (or aspect of reality, depending on your point of view) by adopting one of two directions that finesse the need to specify arbitrary restrictions on the content of contracts.
Writing back in 1873, Walter Bagehot made the observation that since “our credit system [is] much more delicate at some times than at others .. panics come according to a fixed rule, [so] that every ten years or so we must have one of them”.
The dramatic events of the last two years have forced us to reconsider some of the fundamental questions that preoccupied Bagehot and his contemporary financial economists: is a periodic crisis an inherent property of a competitive financial market? Is financial crisis a market failure? If so, what kind of policies should be implemented in order to diminish the social cost? Lastly, is neoclassical economics capable of providing a framework for the analysis of these questions?
