Our model of the initial public offering process links the three main empirical IPO ‘anomalies’ – underpricing, hot issue markets, and long-run underperformance – and traces them to a common source of inefficiency. We relate hot IPO markets (such as the 1999/2000 market for Internet...

This paper demonstrates that winning a takeover bidding contest can be `bad news' and, consequently, losing can be `good news.' This is true even when all bidders act rationally in their own best interests with perfect information on their valuations. Bidders with toeholds rationally bid above...

We examine how an exogenous improvement in market efficiency, which allows the stock market to obtain more precise information about the firm's intrinsic value, affects the shareholder–manager contracting problem, managerial incentives, and shareholder value. A key assumption in the model is...

Close to 50% of municipal bonds are prepackaged with insurance at the time of issue. We offer a tax-based rationale for the emergence of third-party insurance of tax-exempt bonds. We argue that insurance adds value as it allows a third party to become, in a probabilistic sense, an issuer of...

We model an IPO company's optimal response to the presence of sentiment investors. "Regular" investors are allocated stock that they subsequently sell to sentiment investors. Because sentiment demand may disappear prematurely, carrying IPO stock in inventory is risky, so for regulars to break...

This article demonstrates that a potential acquirer with a toehold bids aggressively and possibly overpays in equilibrium. The aggressiveness of a bidder with a toehold increases further if he is able to renege on his winning bid. A bidder without a toehold, however, responds by shading his...

Target firms often face bidders that are not equally well informed, which reduces competition, because bidders with less information fear the winner's curse more. We analyze how targets should be sold in this situation. We show that a sequential procedure can extract the highest possible...