Q11-2. What is the dominant source of capital funding in the United States? Given this result and the fact that most corporations are net dis-savers, what decisions must most managers face in order to address this financial deficit?
Q11-3. How does the role that financial intermediaries play in U.S. corporate finance compare to the role of non-U.S. financial intermediaries?
Q11-4. Discuss the U.S. banking system regulations that have had a major impact on the development of the U.S. financial system. In what ways has the U.S. system been affected (positively and negatively) by these regulations?
Q11-5. Differentiate between a U.S. commercial bank and the merchant banks found in other developed countries. How have these differences affected the securities markets in the United States versus those in other developed countries?
Q11-6. What are the general trends regarding public security issuance by U.S. corporations? Specifically, which security type is most often sold to the public? What is the split between initial and seasoned equity offerings?
Q11-7. Distinguish between a Eurobond, a foreign bond, and a Yankee bond. Which of these three represents the greatest volume of security issuance?
Q11-8. What do you think are the most important costs and benefits of becoming a publicly traded firm? If you were asked to advise an entrepreneur whether to take his or her firm public, what are the key questions you would ask before making your recommendation?
Q11-9. If you were an investment banker, how would you determine the offering price of an IPO?
Q11-10. Are the significantly positive short-run and significantly negative long-run returns earned by IPO shareholders compatible with market efficiency? If not, why not?
Q11-11. List and briefly describe the key services investment banks provide to firms issuing securities before, during, and after the offering.
Q11-11. In preparing for an equity offering, an IB will file necessary documents with regulators, starting with the registration statement. The bankers must value the IPO shares, typically using discounted cash flow models and market comparables. The firm and its bankers go on a road show, talking about the offering to potential investors and getting an idea about demand and pricing of the shares. The lead underwriter distributes shares among the participating investment banks. Once trading begins, the underwriter may engage in price stabilization to make sure sales don't falter immediately after their release to the public. After the offering is sold, the investment bank frequently serves as the market maker for trading in the firm's stock, which means it continuously quotes bid and ask prices for the new security.
Q11-12. What are American Depositary Receipts (ADRs), and why have they proven so popular with U.S. investors?
Q11-13. How would you explain the fact that the underwriting spread on IPOs averages about 7 percent of the offering price, whereas the underwriting spread on a seasoned offering of common stock averages less than 5 percent?
Q11-14. Discuss the various issues that must be considered in selecting an investment banker for an IPO. Which type of placement is usually preferred by the issuing firm?
Q11-15. In terms of IPO investing, what does it mean to "flip" a stock? According to the empirical results regarding short- and long-term returns following equity offerings, is flipping a wise investment strategy?
Q11-16. What materials are presented in an IPO prospectus?
Q11-17. How do you explain the highly politicized nature of share issue privatization (SIP) pricing and share allocation policies? Are governments maximizing offering proceeds, or are they pursuing primarily political and economic objectives?