Chapter 15 How Corporations Issue Securities 401
bre44380_ch15_379-409.indd 401 09/11/15 07:56 AM
J. R. Ritter, “Investment Banking and Securities Issuance,” in G. M. Constantinides, M. Harris, and R.
Stulz (eds.), Handbook of the Economics of Finance (Amsterdam: Elsevier Science, 2003).
T. Jenkinson and A. P. Ljungqvist, Going Public: The Theory and Evidence on How Companies Raise
Equity Finance, 2nd ed. (Oxford: Oxford University Press, 1999).
Two useful articles on IPOs are:
R. G. Ibbotson, J. L. Sindelar, and J. R. Ritter, “The Market’s Problems with the Pricing of Initial Pub-
lic Offerings,” Journal of Applied Corporate Finance 7 (Spring 1994), pp. 66–74.
L. M. Benveniste and W. J. Wilhelm, Jr., “Initial Public Offerings: Going by the Book,” Journal of
Applied Corporate Finance 10 (Spring 1997) pp. 98–108.
A useful introduction to the design of auctions is:
P. Milgrom, “Auctions and Bidding: A Primer,” Journal of Economic Perspectives 2 (1989), pp. 3–22.
Select problems are available in McGraw-Hill’s Connect.
Please see the preface for more information.
BASIC
- Types of issue After each of the following issue methods, we have listed two types of issue.
Choose the one more likely to employ that method.
a. Rights issue (initial public offer/further sale of an already publicly traded stock)
b. Rule 144A issue (international bond issue/U.S. bond issue by a foreign corporation)
c. Private placement (issue of existing stock/bond issue by an industrial company)
d. Shelf registration (initial public offer/bond issue by a large industrial company)
- Definitions Each of the following terms is associated with one of the events beneath. Can
you match them up?
a. Best efforts
b. Bookbuilding
c. Shelf registration
d. Rule 144A
Events:
A. Investors indicate to the underwriter how many shares they would like to buy in a new
issue and these indications are used to help set the price.
B. The underwriter accepts responsibility only to try to sell the issue.
C. Some issues are not registered but can be traded freely among qualified institutional
buyers.
D. Several tranches of the same security may be sold under the same registration. (A
“tranche” is a batch, a fraction of a larger issue.)
- Definitions Explain what each of the following terms or phrases means:
a. Venture capital
b. Bookbuilding
c. Underwriting spread
d. Registration statement
e. Winner’s curse
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PROBLEM
SETS