סמינר במימון חשבונאות

Martin Cherkes, Princeton

joint work with Xingyi Chen (Wharton ) and David K. Musto (Wharton)  

Initial public offerings employ contracts assigning all profits above the offer price to investors, and all losses below to the underwriter. However, participants deviate in practice, such that investors share some of their profits, and some of the underwriter's losses. We model share flotation, starting with the standard contract, adding profit and loss sharing, and allowing the issuer to set the fee and the underwriter to set the price. We find that profit sharing transfers wealth from issuers to underwriters without affecting the offer price, whereas loss sharing makes both the issuer and underwriter better off, while increasing the offer price. Empirical estimation indicates minimal profit sharing but substantial loss sharing.